How does mandatory CSR reporting affect supply chain? A new perspective from suppliers

Exploiting a quasi‐natural experiment which mandates a subset of Chinese listed firms to report corporate social responsibility (CSR) activities, this paper examines how mandatory CSR disclosure affects suppliers' willingness to extend trade credit. We document that mandatory CSR disclosure firms suffer a significant shrinking in the volume of trade credit, which is driven by the supply side instead of the demand side. Further mechanism analyses reveal that both financial condition deterioration and interest conflicts contribute to adverse policy effects. These two factors negatively impact the credit quality of mandatory firms and then weaken credit quality after the mandate subsequently undermines suppliers' willingness to lend. Additionally, the negative association between mandatory CSR disclosure and trade credit is mainly concentrated on highly policy‐exposed corporates, that is, state‐owned enterprises (SOEs) and high‐polluting firms. Our work innovatively evaluates CSR effects from the perspective of suppliers, which provides a new insight into CSR management along the supply chain for academics and practitioners.