Does Social Disclosure Mitigate the Information Disadvantage of Foreign Investors? An Empirical Study Using the Thomson Reuters Asset4 Database

We examine whether social disclosure affects the valuation decision of foreign investors. This research aims to answer a crucial question: Does the practice of societal disclosure reduce the fear of insufficient information among foreign investors, and does it encourage them to invest in socially responsible companies? This issue has already been addressed in various studies conducted in both emerging and developed contexts. Our study covers a six-year period, from 2018 to 2023, and is based on a sample of 666 companies from France, the United States, and the United Kingdom. The data were collected from the renowned Thomson Reuters Asset4 (Datastream) database. This research enriches the literature by drawing on stakeholder theory to analyze the strategic role of societal information in foreign investment decisions. The empirical analyses conducted reveal that adopting a societal disclosure strategy in corporate annual reports has a highly negative and significant impact on foreign investments. This surprising result may be attributed to the fact that societal disclosure practices, while enhancing transparency and addressing the concerns of non-investor stakeholders (such as communities, employees, and regulators), can also amplify perceived risks or highlight challenges related to corporate social responsibility (CSR) issues. Foreign investors might interpret extensive societal information as a signal of underlying problems or as an indicator of increased compliance costs, which could reduce profitability or create uncertainties about future performance. Consequently, foreign investors, who prioritize financial returns and stability, may perceive these disclosures as a warning signal, deterring them from investing. For future research, we recommend exploring this issue in different contexts and incorporating additional variables. Such efforts could yield new insights and deepen our understanding of the relationship between societal disclosure and foreign investments.