The Impact of Corporate Social Responsibility on Investment Recommendations

Abstract:     
We argue that a shift in the prevailing institutional logic – from an agency perspective to a value perspective – impacts the evaluation of corporate social responsibility (CSR) by sell-side investment analysts. We use a large sample of publicly traded US firms over 15 years and find that under a powerful agency perspective, CSR is unfavorably evaluated by sell-side analysts. In later years, when the institutional logic gradually shifts to a value perspective, analysts progressively assess CSR more favorably. Moreover, we find that analysts of higher status are more likely to switch from unfavorable to favorable evaluations of CSR. Finally, we document no impact of CSR on analysts’ forecast errors suggesting that learning by analysts is unlikely to account for the observed shifts in their evaluations of CSR.

Number of Pages in PDF File: 34

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

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

working papers series