Effects of CSR Reporting and Governance Regulation

Abstract

This thesis examines first- and second-order effects of EU regulations of Corporate Social Responsibility (CSR) disclosure and corporate governance, namely the Non-Financial Reporting Directive and the Sec-ond Shareholder Rights Directive. In three empirical studies, the thesis provides evidence regarding two questions: (1) How is CSR reporting enforced, and does enforcement work? And (2) does shareholder voting on remuneration policies (Say on Pay (SoP)) affect executives’ compensation contracts, especially also with respect to CSR-based components? Based on a survey conducted with European enforcement bodies between 2021 and 2022, the first study documents in a systematic fashion country-level heterogeneity in the scope of enforcement, the related enforcement activities, in the institution(s) assigned with the task to carry out enforcement, in the audit of CSR reporting, and in the endowment with human resources. In contrast, (potential) enforcement actions are quite comparable between EU member states. The second study builds upon the findings of the first study by exploiting a regulatory “shock” to the enforcement in Sweden identified in the survey. Specifical-ly, this study investigates whether enforcement shapes CSR reporting (quality) and has economic effects. Results show that Swedish firms increased causal reasoning, improved report readability, and decreased boilerplate disclosures following the initiation of enforcement procedures. These findings suggest that (the threat of) enforcement induced affected Swedish firms to improve their CSR reporting. Cross-sectional tests further reveal that increases in CSR reporting quality are consistently more pronounced for firms with presumably low CSR reporting incentives. Moving on to economic effects, evidence presented in the study suggests that the initiation of CSR reporting enforcement procedures reduced information asym-metries among investors and induced firms to increase CSR activities. The third and last study of the thesis shifts the focus from CSR reporting to corporate governance. Speaking to the second question, the study explores whether (the threat) of shareholder voting on execu-tives’ remuneration affects remuneration packages. My results show that treated firms significantly re-duced total and abnormal compensation, largely driven by a reduction in performance-based compensa-tion components. These effects are more pronounced for firms that for the first time introduced (manda-tory) SoP votes. In contrast, the design of remuneration packages is only partially affected by SoP indi-cating that SoP mainly affects particularly visible elements of remuneration policies (i.e., level of compen-sation).