Impact of Corporate Social Responsibility Activities on Analysts’ Behavior

Abstract

We investigate whether or not a firm’s corporate social responsibility (CSR) activities influence analysts’ behavior. CSR is concerned with the positive and negative impacts of corporations’ present actions on the ecosystems, societies, and environments of the future. Firms with more concerns than strengths (i.e., a lower degree of social responsibility activities) are characterized by less reputation, high risk, high information asymmetry and non-transparent disclosures. These are attributes analyst care about and may influence their behavior. We therefore expect and find that analyst following and consensus forecast accuracy increase and that dispersion among consensus analyst forecasts and revision volatility decrease as the degree of CSR increases. We further find that the influence is driven by the CSR strengths while being limited by CSR concerns. Additionally, we identify three channels (firm performance, earnings quality, and earnings volatility) that mediate the effect of CSR on analysts’ behavior. We show that CSR activities are relevant to an important user group and as a result, we inform regulators as they debate a CSR reporting framework and assurance standards.

Keywords: Analyst Following, Analyst Forecasts, Corporate Social Responsibility, CSR, Forecast Accuracy, Forecast Dispersion, Forecast Revision Volatility

JEL Classification: G240, M410