The third-person effects in the investment decision making: a case of corporate social responsibility
Authors: Laskin Alexander V. 
Published: May 2018

PurposeThe purpose of this paper is to apply a third-person effects theory to the study of corporate social responsibility communications. Previous studies have asked what importance investors assign to the socially responsible activities of corporations. However, in the context of publicly-traded companies, it becomes important not only to calculate the effects of available information on an individual investor, but also to estimate the effects of every piece of information on the investor’s perception of the investment community at large.Design/methodology/approachThe study uses a survey methodology in order to evaluate what value respondents assign to socially responsible behaviors as well as to identify a presence of third-person effects in the corporate social responsibility evaluations. Using an online survey, the respondents were asked to read a modified news article and the respond to a series of questions. In total, 96 completed surveys were collected and analyzed.FindingsThe research finds the presence of third-person effects incorporate socially responsibility message processing. The results of the study show that, while individually people are supportive of the socially responsible behaviors of corporations, they perceive others to be less supportive of such behaviors; they also see others as less likely to encourage such behaviors through action. As a result, people are less likely to act on their own views of corporate socially responsibility as they perceive themselves to be outliers. These findings lead to important consequences for investor communications, which are discussed in light of the efficient market hypothesis.Research limitations/implicationsFrom an academic standpoint, the study proposed that in investor and financial communication, third-person effects could play a significant role. Yet, third-person effects research in investor relations literature simply does not exists. Thus, the study’s main contribution is expanding third-person effects theory into the field of the investor relations research.Practical implicationsFrom practical standpoint, expectations and perception of corporate social responsibility have a significant effect on corporate reputation and, thus, communication about corporate social responsibility become important as they shape these perceptions and expectations. Yet, such corporate social responsibility issues may include a variety of matters, such as governance, responsibility, and the quality of social and economic choices, sometimes even contradictory to each other. It becomes a job of investor relations managers to study, analyze, and respond to these competing demands.Social implicationsFrom societal standpoint, the study advances the debate on the role of corporations in the society. With such concepts as social license to operate and creating shared value, and the growing expectations about corporate behavior, understanding the stakeholders perceptions of socially responsible behavior of corporations as a function of their perceptions of other stakeholders’ viewpoints, creates a better understanding of the complexities involved in the issue of corporate social responsibility reporting.Originality/valueSince investors and other financial publics are not homogenous and may have different perspectives, opinions, values, etc., they may react to the same information differently. Furthermore, they may expect others to behave differently and such perceptions, whether accurate or not, may, in fact, influence their own behavior, as third-person effects theory would suggest. Investor relations, then, becomes a function of managing these expectations. The presence of the third-person effects in investor communications can have a strong effect on market behavior and, thus, must become an important part of the investor relations professionals’ job – how the messages are crafted, communications, and measured. Yet, third-person effects is non-existent in the investor relations literature. Thus, the study provides an original contribution by applying a third-person effects theory in the investor relations research.