Section 1502 of the Dodd-Frank Act mandates that issuers registered with the U.S. Securities and Exchange Commission conduct due diligence on their supply chains and submit Conflict Minerals Disclosures (CMDs), indicating if their products include tin, tantalum, tungsten, or gold originating from the Democratic Republic of the Congo or its neighboring “covered countries” afflicted by the resource curse. Utilizing data from CMDs between 2014 and 2018, I find that firms with socially responsible major corporate customers are more likely to embrace socially responsible sourcing (SRS) and to issue more readable CMDs. Moreover, I investigate whether SRS practices shield firms from supply chain risk increasing events. Exploiting as-if-random sources of variation in supply chain risk increasing events—news of conflicts that occur specifically in the mining regions of covered countries—I show that firms practicing SRS are insulated from the adverse impacts (e.g., imposition of reputation costs) of such news, while non-SRS firms are negatively affected by them. Overall, my evidence demonstrates how and why disclosure rules aimed at encouraging socially desirable outcomes benefit socially responsible firms.
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