Mitigating the Unintended Effect of Corporate Social Responsibility Performance on Investors’ Estimates of Fundamental Value

Abstract:     
We examine how investors’ estimates of fundamental value are causally influenced by a firm’s corporate social responsibility (CSR) performance. We also examine how investor assessment of CSR performance moderates its influence over their fundamental-value estimates. Consistent with psychology theory, we find that when investors are exposed to, but do not explicitly assess, CSR performance, better CSR performance increases their estimates of fundamental value. Explicit investor assessment of CSR performance, however, significantly diminishes this increase. In addition, findings suggest that the increase among investors who do not assess CSR performance occurs subconsciously, i.e., they boost estimated fundamental value with poor self-insight. Supplemental findings shed light on consequences of this poor self-insight: investors who do not assess CSR performance rely on subconsciously boosted estimates of fundamental value to increase the price they are willing to pay to invest in the firm’s stock. Overall, our theory and findings contribute to the self-insight, affect, and CSR literatures in accounting by revealing the contingent nature of how and to what extent CSR performance influences investors’ estimates of fundamental value.

Number of Pages in PDF File: 39

Keywords: fundamental value, nonfinancial performance, investor, affect as information

working papers series