Causal Effect of Analyst Following on Corporate Social Responsibility

48 Pages Posted: 21 Aug 2016

See all articles by Binay Adhikari

Binay Adhikari

University of Texas at San Antonio

Date Written: August 19, 2016

Abstract

I examine the influence of sell-side financial analysts on corporate social responsibility (CSR), and find that firms with greater analyst coverage tend to be less socially responsible. To establish causality, I employ a difference-in-differences (DiD) technique, using brokerage closures and mergers as exogenous shocks to analyst coverage, as well as an instrumental variables approach. Both identification strategies suggest that analyst coverage has a negative causal effect on CSR. My findings are consistent with the view that spending on CSR is a manifestation of an agency problem, and that financial analysts curb such discretionary spending by disciplining managers.

Keywords: Analyst following, Monitoring, Corporate social responsibility (CSR)

JEL Classification: D21, G24, M14

Suggested Citation

Adhikari, Binay Kumar, Causal Effect of Analyst Following on Corporate Social Responsibility (August 19, 2016). Journal of Corporate Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2826675

Binay Kumar Adhikari (Contact Author)

University of Texas at San Antonio ( email )

1 UTSA Circle
San Antonio, TX 78249
United States
2104585349 (Phone)

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