Can Mandatory CSR Disclosure Reduce Corporate Business Risk? An Empirical Study Based on Legitimacy Theory

ABSTRACT Based on legitimacy theory, this study investigates whether mandatory corporate social responsibility (CSR) disclosure reduces corporate business risk and through which mechanisms. Using China's 2008 mandatory CSR disclosure policy as a quasi‐natural experiment, we employ a propensity score matching–difference‐in‐differences approach (PSM‐DID). Results show that mandatory CSR disclosure significantly reduces corporate business risk. Mediation analyses provide evidence consistent with the mediating roles of corporate violations and corporate reputation. Further, in terms of the moderating effect of internal incentive mechanism and external supervision mechanism, mandatory CSR disclosure is more likely to reduce corporate business risk when management equity incentive and analyst following are strengthened.