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

51 Pages Posted: 8 Jun 2021 Last revised: 19 Nov 2021

See all articles by Jonathan Berkovitch

Jonathan Berkovitch

Luiss Guido Carli University - Department of Business and Management

Doron Israeli

IDC Herzliya - Arison School of Business; Nazarbayev University - Graduate School of Business; affiliation not provided to SSRN

Atanu Rakshit

Nazarbayev University - Graduate School of Business

Suhas A. Sridharan

Emory University - Goizueta Business School

Date Written: November 18, 2021

Abstract

We investigate whether a firm’s corporate social responsibility (CSR) activities affect investor trust. Motivated by the observation that trust increases disclosure credibility and thereby facilitates greater informational price efficiency, we address our question by examining the relation between CSR and stock price discovery. We find robust evidence that CSR enhances investor trust as manifested in disclosure credibility; firms with more CSR enjoy faster incorporation of earnings news into stock prices, lower investor uncertainty around earnings announcements, and higher earnings response coefficients. Using a regression discontinuity design, we strengthen our identification of the effect of CSR on the speed with which stock prices reflect earnings news. Consistent with this effect arising from greater investor trust, we find that CSR is associated with faster price discovery only for good news. Our inferences are robust to controls for characteristics of reported earnings and firms' information environment, as well as alternative measures of CSR.

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

JEL Classification: G24, M14, M41, Q56

Suggested Citation

Berkovitch, Jonathan and Israeli, Doron and Rakshit, Atanu and Sridharan, Suhas A., Does CSR Engender Trust? Evidence From Investor Reactions to Corporate Disclosures (November 18, 2021). 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

Doron Israeli (Contact Author)

IDC Herzliya - Arison School of Business ( email )

P.O. Box 167
Herzliya, 46150
Israel
+972 9 952 7673 (Phone)

Nazarbayev University - Graduate School of Business ( email )

53 Kabanbay Batyra Avenue
Nur-Sultan, 010000
Kazakhstan

affiliation not provided to SSRN

Atanu Rakshit

Nazarbayev University - Graduate School of Business ( email )

53 Kabanbay Batyra Avenue
Astana, 010000
Kazakhstan

Suhas A. Sridharan

Emory University - Goizueta Business School ( email )

1300 Clifton Road
Atlanta, GA 30322-2722
United States

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