THE MARKET REACTION TO SOCIAL RESPONSIBILITY INFORMATION DISCLOSURES: THE CASE OF THE SULLIVAN PRINCIPLES SIGNINGS

In recent years, a number of authors have suggested that corporate social responsibility information may play a role in investors' evaluations of investment desirability. However, very few studies have examined the market reaction to disclosures of information related to specific areas of social concern. This study investigates whether security price movements and excess trading volume are associated with the public disclosure that certain U.S. companies doing business in South Africa had signed the Sullivan Principles, a code of equal economic opportunities for non-white workers in South Africa.; Market model regressions were used to isolate the unexpected price returns and unexpected trading volume for the test companies and for a control group of companies that had not signed the Sullivan Principles. Differences in mean unexpected price returns and mean unexpected trading volume between the two groups were calculated for each of seven days surrounding the disclosure date. The differences were then tested to determine the stock market response to the signing of the code. Although results on security price data are inconclusive, there is a significant trading volume reaction associated with the information disclosure. The trading volume reaction is consistent with the interpretation of information content in the social responsibility disclosure.