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The Impact of Corporate Social Responsibility on Investment Recommendations: Analysts’ Perceptions and Shifting Institutional Logics


Ioannis Ioannou


London Business School

George Serafeim


Harvard University - Harvard Business School

March 1, 2013

Strategic Management Journal, Forthcoming

Abstract:     
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 for firms with high CSR ratings. 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 more recent years analysts progressively assess these firms less pessimistically, and eventually they assess them optimistically. Furthermore, we find that more experienced analysts and analysts at 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.

Number of Pages in PDF File: 46

Keywords: corporate social responsiblity, analysts' recommendations, stakeholder theory, management innovation, learning, governance, environment

JEL Classification: M00, M1, M14, M41, D82, D83, D84

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Date posted: November 17, 2009 ; Last revised: March 20, 2014

Suggested Citation

Ioannou, Ioannis and Serafeim, George, The Impact of Corporate Social Responsibility on Investment Recommendations: Analysts’ Perceptions and Shifting Institutional Logics (March 1, 2013). Strategic Management Journal, Forthcoming. Available at SSRN: http://ssrn.com/abstract=1507874 or http://dx.doi.org/10.2139/ssrn.1507874

Contact Information

Ioannis Ioannou (Contact Author)
London Business School ( email )
Sussex Place
Regent's Park
London, NW1 4SA
United Kingdom
02070008748 (Phone)
HOME PAGE: http://www.london.edu
George Serafeim
Harvard University - Harvard Business School ( email )
381 Morgan Hall
Boston, MA 02163
United States
HOME PAGE: http://drfd.hbs.edu/fit/public/facultyInfo.do?facInfo=ovr&facId=15705
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