Incentive

Linguistics

Engineering

Philosophy

Comparability

Exploit

Public relations

Computer security

Accounting

Economics

Transparency (behavior)

Market economy

Computer science

Business

Corporate governance

Mechanical engineering

Due diligence

Mathematics

Political science

Public disclosure

Combinatorics

Voluntary disclosure

Finance

Stakeholder

Affect (linguistics)

Shareholder

The Accounting Review

ABSTRACT This paper studies whether and how mandatory nonfinancial disclosure affects firms' real decisions. I exploit a disclosure regulation enacted in California, which mandates that firms disclose how they conduct due diligence to address their suppliers' human rights abuses. I find that treated firms increase their supply chain due diligence, and their suppliers' human rights performance improves following the regulation. The effects are stronger when firms face greater pressure from non-governmental organizations (NGOs) and socially conscious shareholders, when customers have greater incentives to use the newly disclosed information, and when the regulation leads to a larger increase in information comparability. Collectively, the results suggest that mandatory nonfinancial disclosure can affect firms' real decisions through market mechanisms and that stakeholder responses play a key role. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: G14; G18; G38; J80; K22; K31; K38; L23; M41; M48.

The Real Effects of Mandatory Nonfinancial Disclosure: Evidence from Supply Chain Transparency