Workshop Series: David Lont

5 November, 2012 - 10:30 to 12:00
Room 106 Colin Clark Building #39

Abstract:

This study tests hypotheses about the expected economic cost of section 1502 of the Dodd-Frank Act of 2010, which seeks to expand transparency and eliminate trade in U.S. companies' use of conflict minerals. Conflict minerals refers to minerals mined mostly in the Republic of Congo and adjoining countries to support armed conflict and human rights abuses. We also study conflict minerals as an example of a supply chain activity outside of the confines of traditional accounting and reporting that affects investors' perceptions of company value and sustainability. Based on companies with initial conflict minerals disclosures (discloser companies) and a sizeand industry-matched control sample of non-disclosers, we find that shareholder value decreases for both samples for up to three weeks following the event dates of the discloser companies. These results support the notion that conflict minerals disclosure engenders changes in company and customer decision making, which adversely affects shareholder value (the endogenic hypothesis). They are not consistent with the alternative hypothesis, that conflict minerals disclosure improves shareholder value through increased transparency. Our findings are also consistent with companies' claims of a significant cost to implement section 1502. These results have distinct implications for corporate social responsibility disclosure, for they show that legislators' and stakeholders' demands for increased social transparency can be highly costly to shareholders when the disclosure rules induce significant changes in management and customer decision making.

Professor David Lont, Department of the School of Business, University of Otago, New Zealand