We study the different levels of corporate social responsibility (CSR) disclosures of the
largest European firms. We find that firms are more predisposed to disclose more CSR
information in countries with: better investor protection, higher levels of democracy,
more effective government services, higher quality regulations, more press freedom,
and a lower commitment to environmental policies. Our analysis of the association of
different levels of CSR disclosure with share prices indicates that a high level of CSR
disclosure is associated with higher share prices, whereas a low level of CSR disclosure
in sensitive industries is associated with lower share prices (compared to no disclosure).
These results are also present when we analyse changes in CSR disclosure, and are
robust to the inclusion of an accounting quality measure in our model. The overall effect
of the association of higher levels of CSR disclosure with higher share prices is stronger
in countries with more democracy, more government effectiveness, better regulatory
quality, and more press freedom. Therefore, market participants find CSR disclosures
more informative in countries where investors are in a better position to voice their
concerns and where there is better regulation and more effective government
implementation of regulations.