Foreground or background my social responsibility: impact of the trade war on the readability of corporate social responsibility disclosures

This study empirically investigates the impact of the U.S.-China trade war on corporate social responsibility (CSR) disclosure readability. We first propose a measure of CSR disclosure readability with the latest word embedding model of Word2Vec. Using the U.S.-China trade war as an exogenous shock, we conduct a difference-in-differences analysis and find that firms release more readable CSR disclosures in response to the trade war. We interpret this finding to indicate that CSR disclosure can be a strategic tool to enhance the firms’ reputations when they suffer a negative shock. Moreover, such an effect is more pronounced for firms with tighter internal governance or external supervision. Our results are robust to confining our sample with a Coarsened Exact Matching algorithm and a battery of robust checks. Finally, we find that the trade war leads to increased charitable donations, indicating that our CSR readability measure is more likely to reflect actual CSR activities.