The effect of mandatory CSR disclosure on stock liquidity

Abstract

This study examines the effect of mandatory CSR disclosure on stock liquidity in the China's stock market. Using a difference-in-differences method, we find supportive and robust evidence that mandatory CSR disclosure significantly reduces stock liquidity by diminishing informational advantages for certain traders, causing them to exit the stock market. Our study highlights unintended liquidity effects of mandatory CSR disclosure, suggesting that policymakers need to consider reactions of the information-advantaged traders, especially in emerging markets with high information asymmetry.