Does Mandating CSR Reporting in the EU Generate Horizontal Spillovers?
Authors: Saleh Ahmed , Eliwa Yasser , Aboud Ahmed 
Published: December 2024

Synopsis The research problem Directive 2014/95/EU (hereafter, “the CSR Directive”) mandates the disclosure of non-financial and diversity information by EU-listed firms with more than 500 employees and with either more than €20 million in total assets or more than €40 million in sales. However, the CSR Directive has been completely silent on the obligations of other unregulated firms. The fact that the CSR Directive applies only to a specific segment of the market, creating a gap between regulated and unregulated firms, raises a question of whether this CSR Directive has spillover effects beyond regulated firms that meet the number of employees and the total assets or sales thresholds. Motivation Our study is motivated by the unique setting that the CSR Directive provides for our research in that it mandates CSR reporting exclusively for EU-listed firms. While previous studies have primarily examined the effects of mandating CSR on the quality of CSR reporting and the level of CSR activities of regulated EU-listed firms, our research expands the scope by investigating the spillover effects of the CSR Directive on unregulated EU-listed firms. Hypotheses Our first pair of hypotheses is that unregulated EU-listed firms show higher quality of CSR reporting (a) following the passage of the CSR Directive in 2014 and (b) after the CSR Directive became effective in 2017. Our second pair of hypotheses is that unregulated EU-listed firms show a higher level of CSR activities (a) following the passage of the CSR Directive in 2014 and (b) after the CSR Directive became effective in 2017. Target population Our study provides timely insights to regulators and policymakers into the overall effects of future CSR reporting mandates. This is particularly important while the EU Parliament and Commission are reviewing the CSR Directive for potential replacement by the new Corporate Sustainability Reporting Directive (CSRD). Our study is also useful for researchers who are interested in observing the spillover effects of the CSR Directive on unregulated EU-listed firms. Adopted methodology We performed multivariate analyses using OLS regression and the difference-in-differences analysis using entropy balancing. Analyses Our sample period covers the years from 2010 to 2020 and, therefore, provides an avenue to address the effects of passing the CSR Directive over the period 2010–2016 and the effects of the mandatory implementation of the CSR Directive over the period 2014–2020. The results are interpreted through the lens of the theory of institutional isomorphism. Findings We provide evidence that following the passage of the CSR Directive in 2014, the CSR reporting quality of unregulated EU-listed firms has improved. This means that more unregulated EU-listed firms published CSR stand-alone reports or a section in their annual report, increased the level of their CSR information disclosure, had their CSR information externally audited, and had their CSR report published in accordance with the GRI or the OECD guidelines. We also found that EU-listed firms have increased the level of their CSR activities and the clarity of their CSR strategy. This trend has been more pronounced following the mandatory implementation of the CSR Directive in 2017.