The impact of corporate social responsibility on investment recommendations
By: Ioannis Ioannou, George Serafeim
Contributors: Serafeim, George, author; Harvard Business School
Edition: Revised edition
Series: Working paper / Harvard Business School -- 11-017; Working paper (Harvard Business School) -- 11-017
Publisher: Harvard Business School
Published: 2014
Place of publication: Boston
Language: eng
Number of pages: 45
Description: We explore the impact of corporate social responsibility (CSR) ratings on sell-side analysts' assessments of firms' future financial performance. We suggest that when analysts perceive CSR as an agency cost, due to the prevalence of an agency logic, they produce pessimistic recommendations for firms with high CSR ratings. Moreover, we theorize that over time, the emergence of a stakeholder focus, and the gradual weakening of the agency logic, shifts the analysts' perceptions of CSR ratings and results in increasingly less pessimistic recommendations. Using a large sample of publicly traded US firms over 15 years, we confirm that in the early 1990s, analysts issue more pessimistic recommendations for firms with high CSR ratings. However, in subsequent years up to 2007, analysts progressively assess these firms less pessimistically, and eventually they assess them optimistically. Furthermore, we find that more experienced analysts and higher-status brokerage houses are the first to shift the relation between CSR ratings and investment recommendation optimism. We find no significant link between firms' CSR ratings and analysts' forecast errors, indicating that learning is unlikely to account for the observed shifts in recommendations. We discuss implications for both for future research and practice.
Notes: "August 2010. (Revised February 2014.)"--Publisher's Web site.

Includes bibliographical references (pages 41-45).