Does corporate social responsibility matter to management forecast precision? Evidence from China

Xiangyu Chen, Peng Wan, Xiaofeng Quan and Muhammad Safdar Sial

Economic Research-Ekonomska Istraživanja, 2020, vol. 33, issue 1, 1767-1795

Abstract: This article investigates whether socially responsible companies differ from other firms in the quality of earnings forecasts issued by management. Specifically, using 5192 earnings forecast observations of 669 Chinese listed companies from 2010 to 2016, we examine whether companies that perform better in corporate social responsibility (CSR) still provide higher-precision management earnings forecasts compared with companies with poor CSR performance, thereby presenting an image of transparent and accountable disclosures. Through empirical research, this paper finds that CSR is positively associated with management forecast precision. This result is robust to using alternative measures of CSR, considering mandatory disclosure sample and voluntary disclosure sample, and controlling for potential endogeneity concern by adopting the instrumental variable method. Furthermore, we find the relationship between CSR and management forecast precision is stronger in non-state-owned firms. Our findings suggest that socially responsible companies will comply with higher ethical standards and hence maintain their well-established social reputation by disclosing high-quality earnings forecasts, which lends support to the transparent forecast hypothesis. This paper enriches the existing studies regarding the economic consequences of CSR and adds empirical evidence from emerging markets.

Date: 2020
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DOI: 10.1080/1331677X.2020.1761420

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