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| 01.12.2022

Doctoral thesis: Mandatory CSR disclosure laws can have also unintended consequences

Currently, several regulators including the EU are adopting new corporate social responsibility (CSR) disclosure laws. These laws aim to encourage companies to develop a responsible approach to business. Consequently, various effects on the company and its external stakeholders are likely to arise, some of which may be unintended.

This calls for research on the economic consequences of mandatory CSR disclosure. In his doctoral dissertation “On the Costs, Benefits and Externalities of Mandatory CSR Disclosure Laws” Jukka Kettunen analyzes the related adoption costs, benefits, and the side effects on unregulated companies that these laws may have.

Although the same EU directive on mandatory CSR disclosure has been transposed into national level laws across the Union, the adoption costs vary between countries. The adoption costs are lower in stakeholder-oriented countries, such as the Nordic countries. On the contrary, the adoption costs are higher and more persistent in shareholder-oriented countries.

“The adoption of mandatory CSR disclosure laws is more costly in countries which previously had lower levels of CSR”, Kettunen summarizes.

Typically, major regulatory reforms increasing disclosure also increase auditor workload and fees. However, after the adoption of mandatory CSR disclosure, audit fees decrease. The reason for this seems to be that the comprehensive sustainability disclosures provide valuable client information to auditors.

“The information provided by mandatory CSR disclosures help auditors better allocate scarce audit resources, which is reflected in lower audit fees especially in competitive audit markets”, Kettunen argues.

In his dissertation Kettunen also finds that the effects of CSR disclosure laws can spillover from larger regulated companies to smaller unregulated firms. Especially in industries with a large proportion of firms subject to CSR disclosure regulation, their unregulated peer companies increase capital expenditure and labor after the adoption. Given that CSR is becoming increasingly mainstream, Kettunen argues that these investments are likely to represent a strategic response to competitive threats.

The dissertation is available here .

Doctoral defense of Jukka Kettunen: Friday, 2 December at 12:00 EEST at Hanken School of Economics and in Teams.
Opponent and university: Katrin Hummel, Professor, Vienna University of Economics and Business
Chair: Kim Ittonen, PhD, Professor, Hanken School of Economics
Place: Hanken School of Economics, Helsinki, Assembly Hall and online.