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

39 Pages Posted: 15 Jun 2011 Last revised: 1 Dec 2014

W. Brooke Elliott

University of Illinois at Urbana-Champaign

Kevin E. Jackson

University of Illinois at Urbana-Champaign - Department of Accountancy

Mark E. Peecher

University of Illinois at Urbana-Champaign; University of Illinois College of Law

Brian J. White

University of Texas at Austin - Department of Accounting

Date Written: March 15, 2012

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.

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

Suggested Citation

Elliott, W. Brooke and Jackson, Kevin E. and Peecher, Mark E. and White, Brian J., Mitigating the Unintended Effect of Corporate Social Responsibility Performance on Investors’ Estimates of Fundamental Value (March 15, 2012). Accounting Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1864827 or http://dx.doi.org/10.2139/ssrn.1864827

W. Brooke Elliott

University of Illinois at Urbana-Champaign ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

Kevin Jackson

University of Illinois at Urbana-Champaign - Department of Accountancy ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

Mark E. Peecher (Contact Author)

University of Illinois at Urbana-Champaign ( email )

1206 South Sixth Street
Champaign, IL 61820
United States
217-333-4542 (Phone)
217-244-0902 (Fax)

University of Illinois College of Law ( email )

504 E. Pennsylvania Avenue
Champaign, IL 61820
United States

Brian J. White

University of Texas at Austin - Department of Accounting ( email )

Austin, TX 78712
United States

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