German and US Investment Professionals’ Use of Corporate Social Responsibility Disclosures in Their Personal Investment Decisions and Recommendations to Clients

Abstract

We examine whether and how German and US investment professionals use corporate social responsibility (hereafter, CSR) information when making personal investment decisions and recommendations to clients. Using an experiment, we find that both German and US investment professionals use CSR information in several ways. First, CSR information affects investment professionals’ assessments of financial performance. Second, even after controlling for the effect of CSR information on their assessments of financial performance, both German and US investment professionals are willing to invest more when they assess CSR performance as higher. Importantly, this second effect is driven by their personal beliefs about the benefits to society of CSR activities. Third, German, but not US, investment professionals engage in motivated reasoning, i.e., the more strongly they believe that CSR benefits society, the more likely they are to believe that CSR improves financial performance. Finally, we find that both German and US investment professionals use CSR information in the same ways when making recommendations to clients as when making their personal investment decisions. We discuss the implications of these novel findings for theory and practice.

Keywords: Corporate social responsibility, CSR, professional investors, CSR disclosures, investment professionals

JEL Classification: G10, G11, G40, G41, M14, M41