Does CSR Engender Trust? Evidence From Investor Reactions to Corporate Disclosures

56 Pages Posted: 8 Jun 2021 Last revised: 19 Jan 2024

See all articles by Jonathan Berkovitch

Jonathan Berkovitch

Luiss Guido Carli University - Department of Business and Management

Cassandra Estep

Emory University

Doron Israeli

IDC Herzliya - Arison School of Business; Nazarbayev University - Graduate School of Business

Suhas A. Sridharan

Emory University - Goizueta Business School

Date Written: January 18, 2024

Abstract

We investigate whether a firm’s corporate social responsibility activity (CSR) affects investor trust. Motivated by the observation that trust enhances disclosure credibility which will in turn lead to faster price discovery, we address our question by examining the relation between CSR and stock price discovery at earnings announcements. We find robust evidence that firms with more CSR enjoy faster incorporation of earnings news into stock prices. This faster price discovery exists only for positive earnings news, reinforcing the perspective that CSR leads investors to maintain a positive view of the firm. We strengthen our identification of the effect of CSR on investor trust using regression discontinuity analyses of shareholder CSR proposals and an experiment that provides evidence of the causal effects of a firm’s CSR on investor perceptions of trust. We further show that high CSR firms experience lower investor uncertainty, more trading volume, and stronger earnings response coefficients.

Keywords: Corporate social responsibility activity (CSR), investor trust, informational price efficiency, price discovery

JEL Classification: G24, M14, M41, Q56

Suggested Citation

Berkovitch, Jonathan and Estep, Cassandra and Israeli, Doron and Sridharan, Suhas A., Does CSR Engender Trust? Evidence From Investor Reactions to Corporate Disclosures (January 18, 2024). Available at SSRN: https://ssrn.com/abstract=3858135 or http://dx.doi.org/10.2139/ssrn.3858135

Jonathan Berkovitch

Luiss Guido Carli University - Department of Business and Management ( email )

Viale Pola 12
Rome, 00198
Italy

Cassandra Estep

Emory University ( email )

1300 Clifton Road
Atlanta, GA 30322
United States

Doron Israeli (Contact Author)

IDC Herzliya - Arison School of Business ( email )

P.O. Box 167
Herzliya, 46150
Israel

Nazarbayev University - Graduate School of Business ( email )

53 Kabanbay Batyra Avenue
Nur-Sultan, 010000
Kazakhstan

Suhas A. Sridharan

Emory University - Goizueta Business School ( email )

1300 Clifton Road
Atlanta, GA 30322-2722
United States

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