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The Market Response to Mandatory Conflict Mineral Disclosures

Author

Listed:
  • Fayez A. Elayan

    (Brock University)

  • Kareen Brown

    (Brock University)

  • Jennifer Li

    (Brock University)

  • Yijia Chen

    (Brock University)

Abstract

This paper examines the market response to the events leading up to the passage of Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Act) to explore whether investors value mandatory human rights disclosures of conflict mineral usage. Using a sample of 3639 US registrants from January 1, 2008 to September 30, 2014, we document a significant negative stock market reaction to the passage of the Act. Using a sample of 1206 filers, we also find a negative market reaction to conflict mineral disclosures under the Act. The market reaction is more negative and limited to companies that source their minerals from the DRC and adjoining countries, companies with prior records of human rights violations, and companies with ambiguous disclosures. However, the market appears to reward firms that use risk-mitigation strategies. This paper provides preliminary evidence that the mandatory disclosure of conflict mineral information on Form SD poses a threat to firms’ legitimacy, resulting in a net cost to investors. The results of this study provide economic justification for companies with poor records of conflict mineral sourcing to improve their practices for the purpose of avoiding the high costs that will arise if they are forced to disclose human rights abuses related to conflict mineral use.

Suggested Citation

  • Fayez A. Elayan & Kareen Brown & Jennifer Li & Yijia Chen, 2021. "The Market Response to Mandatory Conflict Mineral Disclosures," Journal of Business Ethics, Springer, vol. 169(1), pages 13-42, February.
    • Handle: RePEc:kap:jbuset:v:169:y:2021:i:1:d:10.1007_s10551-019-04283-9
    DOI: 10.1007/s10551-019-04283-9
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    References listed on IDEAS

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    Cited by:

    1. Elayan, Fayez A. & Pacharn, Parunchana & Li, Jennifer & Brown, Kareen & Chen, Yijia, 2023. "The market response to mandatory disclosure of payments to foreign governments," The British Accounting Review, Elsevier, vol. 55(6).

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