addition CSR cost will lower claims from community and NGO Mackey, et al. 2007, Bird et al, 2007 , 3 some mining companies high-profile industry have undergone
some CSR projects voluntarily, so they will have no problems when CSR becomes mandatory 4 the additional activities and reporting required by the law will increase the
accuracy of market expectation, lower information asymmetry, and lower market surprise Na’im Rakhman, 2000.
The implication of mandatory CSR implementation, however, is addition of cost. The addition of cost on CSR may have an impact toward company performance. Hence,
investor will determine their decision by looking how company manages the additional cost. The better company manages the additional cost, the better market will react. Thus,
in mandatory CSR implementation law event day, one could expect that the strength and the direction of the abnormal returns would be determined by several contextual factors
a. Size
Previous studies suggest that companies with bigger size tend to disclose more of CSR information. The bigger company size will make company exposure to social and
environmental risks are higher, since the company will deal with many parties through its activities and products Hackston Milne, 1996. The bigger size also made companies
to be more politically visible Belkoui Karpik, 1989. Hence, the bigger size companies have to make more effort to build their image and be perceived have concerns
to community, otherwise the companies will expose to political and social sanctions. Based on that argument, the mandatory CSR law will not affect much to the companies
which have bigger size, since they’ve already experienced to perform and report information of CSR beforehand. Thus, it will increase the accuracy of market expectation
and lower market surprise Na’im Rakhman, 2000. Smaller companies, on the other hand, do not have such experience and expertise or probably they never conduct any CSR
program before. Therefore, the first hypothesis for this study is: H
1:
In response to mandatory CSR implementation law, the stock market will react more positively to smaller firms whose activities deal with or related to the management
of natural resources.
b. Profitability
The implication of CSR legislation may incur additional costs. Companies which have high profitability may not be affected much by such additional cost. The high
profitability will provide a company more flexibility to manage and report CSR programs Hackston Milne, 1996. Therefore, more profitable firms are more likely to be able to
afford to implement the CSR programs. As such, the second hypothesis in this study is: H
2
: In response to mandatory CSR implementation law, the stock market will react
more positively to more profitable firms whose activities deal with or related to the management of natural resources.
c. Leverage
