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

Strategic Management Journal, Volume 36, Issue 7, pp. 1053-1081, July 2015

46 Pages Posted: 17 Nov 2009 Last revised: 1 Feb 2017

Ioannis Ioannou

London Business School

George Serafeim

Harvard University - Harvard Business School

Date Written: July 1, 2015

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.

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

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

Suggested Citation

Ioannou, Ioannis and Serafeim, George, The Impact of Corporate Social Responsibility on Investment Recommendations: Analysts’ Perceptions and Shifting Institutional Logics (July 1, 2015). Strategic Management Journal, Volume 36, Issue 7, pp. 1053-1081, July 2015. Available at SSRN: https://ssrn.com/abstract=1507874 or http://dx.doi.org/10.2139/ssrn.1507874

Ioannis Ioannou (Contact Author)

London Business School ( email )

Sussex Place
Regent's Park
London, NW1 4SA
United Kingdom
02070008748 (Phone)

HOME PAGE: http://www.ioannou.us

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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