Telfer Research Seminar Series - Sarah Kaplan

Regulators increasingly adopt mandatory disclosure regulations to address social challenges. Requiring information disclosure rather than directly regulating firm behaviors and outcomes relies on social enforcement—a decentralized process where stakeholders may monitor, identify, and report on legal, ethical, or community norms violations—to ensure progress. Its efficacy, however, is contingent upon stakeholder access to information about the firm. Prior research shows that firms use symbolic management strategies in voluntary disclosures to make information harder to retrieve and evaluate. We theorize that this will also be the case in mandatory disclosures but that a firm’s visibility—the attention it receives from its stakeholders—will moderate its strategic response in terms of whether they use symbolic management strategies such as obfuscation and abstraction and how this is associated with subsequent substantive action. We test our hypotheses using the texts of 3,213 diversity disclosures from firms under the Ontario Securities Commission’s mandatory “comply-or-explain” regulation for women’s representation on boards (2015-2018). Our analysis suggests that disclosure regulations relying on social enforcement may only work to the extent that firms are visible to stakeholders. If they receive less intense and multifaceted scrutiny, firms may be able to hide behind symbolic management strategies.