Is the medium the message? Social disclosure channels and firm risk

Abstract

Investors interpret social disclosures from a risk perspective, yet relevant information can reach them through channels that differ sharply in regulatory enforcement and materiality: SEC filings, sustainability reports, or financial reports. We analyse how social disclosure via each channel relates to idiosyncratic risk. Studying S&P 1,500 constituents, we distinguish between initiated and continued disclosure along the three disclosure channels. We find first-time disclosure of social issues via SEC filings is related to increased idiosyncratic firm risk, highlighting that unexpected information is published. Continuous disclosure of social issues is related to lower idiosyncratic risk for sustainability and financial reports, which is in line with the literature. The SEC filing effect is robust for downside idiosyncratic risk measures, the separation of social disclosure into human capital, product liabilities, and stakeholder engagement, and for propensity score matching. Our findings suggest that the risk impacts of sustainability disclosure depend on the newness of information and disclosure channels.