How Do Consumers Use Firm Disclosure? Evidence from a Randomized Field Experiment

Maximilian Muhn is an Assistant Professor of Accounting at the University of Chicago Booth School of Business. This post is based on a working paper by Professor Sinja Leonelli, Professor Muhn, Professor Thomas Rauter, and Professor Gurpal Sran. Related research from the Program on Corporate Governance includes Social Responsibility Resolutions (discussed on the Forum here) by Scott Hirst; and Stockholder Politics by Roberto Tallarita.

Public corporate disclosures are a critical communication tool for firms, informing stakeholders about practices and performance. While firm disclosures traditionally target investors, consumers may also use these resources to inform their purchase decisions. Numerous anecdotes suggest that consumers increasingly value companies’ environmental, social, and governance (ESG) practices. However, there had been no systematic evidence on whether and how consumers use corporate disclosures to inform purchase decisions.

In our paper, “How do Consumers Use Firm Disclosure? Evidence from a Randomized Field Experiment,” we examine how U.S. retail consumers use and respond to different types of financial and non-financial firm disclosure. To implement our project, we collaborate with Numerator—one of the largest marketing-research firms in the United States—and rely on Numerator’s Test Panel (NTP). Numerator collects demographic characteristics and transaction-level consumption data for U.S. households that scan their receipts and link their e-commerce accounts through a mobile app.

Our survey experiment has three key features: (i) a set of descriptive questions about consumers’ preferences, information frictions, and information acquisition behaviors, (ii) an information experiment in which we test the causal effects of various types of firm disclosure on consumers’ purchase intentions, and (iii) a field component with data on consumers’ actual product purchases post-experiment. We fielded the survey experiment in March 2023 and 24,675 test panelists responded, implying a high response rate of 49%.

First, we establish several new descriptive facts about how consumers make purchase decisions and their demand for firm-level information. Product quality and price emerge as the two most important purchase considerations. ESG activities of the producing company, especially working conditions (S) and carbon footprint (E), also matter. Firms’ financial performance ranks lowest in consumer considerations. For information acquisition, consumers primarily rely on personal referrals (69%) and customer reviews (62%). In terms of firm disclosures, consumers most frequently consult firm websites (about 18% of consumers), whereas only 9% (3%) reference ESG reports (annual reports). This result is supported by the fact that 78% (63%) of consumers are even unaware of the existence of ESG reports (annual reports).

Most consumers report a moderate preference for purchasing products from ESG-responsible firms. Consumers, however, also face significant frictions in accessing and using relevant firm-level ESG information. 35% of consumers are not informed about a company’s ESG activities, nearly 30% are unaware of the product’s producing company, and over 20% face financial or time restrictions. A minority, 12%, distrust the accuracy of firm ESG disclosures. In contrast to moderate preferences for firms’ ESG characteristics, 73% of consumers are indifferent to firms’ profitability when making purchase decisions.

To complement these descriptive insights, we examine how the randomized provision of actual firm ESG and financial disclosures affects consumer purchase intentions. We show consumers 15 profiles of actual products and ask for their intent to purchase each product over the next six months (using a Likert scale from 1 to 7). Product profiles always contain the product name, name and industry of the producing company, average selling price, and a picture of the product. If the product profile is randomly assigned to one of seven treatment groups, we provide additional content in the form of the producing company’s ESG report, annual report, summaries of the firm’s self-disclosed ESG activities (by E, S, and G independently), earnings surprise information, or consumer reviews about the product. We generate 51,250 distinct product profiles for 6,440 different products. To maximize the relevance of product profiles, we show both previously purchased and competing products (i.e., substitutes) using the actual purchase history of each household.

Our main result is that consumers react to certain types of firm-level ESG information, but not to firm-level financial information when making everyday purchase decisions. Specifically, respondents have a significantly higher purchase intent when they exogenously learn about firms’ social or environmental activities. This result is modest in terms of magnitude, but comparable to providing consumers with positive product review information. Providing a direct link to firms’ ESG reports has no effect on consumers’ purchase intentions on average, unless consumers choose to view the full report, which significantly increases purchase intent (about three times larger than the average response to a positive product review). Consistent with our descriptive evidence, financial disclosures, including annual reports and earnings updates, have no notable impact on purchasing decisions. Younger, politically liberal consumers, and those informed about corporate reporting or involved in investing, are more responsive to ESG information. Finally, the response to ESG information is stronger for substitute products than for previously purchased products.

Although these results provide insights on how firm-disclosed information—if directly delivered—affects purchase intentions, they do not necessarily shed light on how this information maps into real purchase behavior. In this context, our experiment offers a unique advantage: we are able to observe the actual purchase behavior of respondents post-experiment and examine whether and how our experiment impacts real consumption decisions. Post-experiment, we find small positive consumption effects only for viewed ESG reports and positive social information and small negative consumption effects for mediocre consumer reviews.

To understand the reasons behind these modest real effects, we conducted a follow-up survey among the respondents of our original survey experiment. While 70% of the 16,350 follow-up respondents recall participating in our original survey experiment, 65% of these consumers report no resulting change in shopping behavior primarily due to forgetting the provided information, in addition to time and financial constraints, indifference towards firm profitability, and unawareness of which firms produce which products. Among respondents who reported a change in behavior, 73% convey enhanced understanding and awareness of product and firm characteristics post-experiment.

Overall, our findings suggest that while consumers value certain firm-level characteristics (especially ESG activities), they often face significant frictions in using this firm-disclosed information to guide their daily purchasing choices.

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