Does Disclosing Well Lead to Doing Good?

Abstract

Firms in China increase green innovation following a mandate that requires them to regularly disclose their corporate social responsibility (CSR) activities. This effect is primarily concentrated in firms with greater innovation capability, stronger innovation incentives, and more financial flexibility. Further analyses show that the CSR disclosure mandate increases media coverage of mandated firms’ environmental issues, driven largely by negative environmental news, suggesting that negative publicity plays a key role in motivating these firms to pursue green innovation. The green innovations following the mandate are unlikely to be greenwashing, as evidenced by their high patent quality and their positive impact on firms’ future environmental performance. In contrast, voluntary CSR disclosure does not affect corporate green innovation and increases positive, but not negative, environmental media coverage. Our findings support the Porter Hypothesis by showing that disclosure-based environmental regulations can effectively promote meaningful corporate innovation.