Analysts' vs. investors' optimism bias in legal and normative CSR

Grace Il-Joo Kang and G-Song Yoo

Finance Research Letters, 2025, vol. 79, issue C

Abstract: This study examines optimism bias in how analysts and investors assess corporate social responsibility (CSR). Prior research documents this bias separately, but we provide a direct comparison, showing their biases differ based on managers’ underlying motivation: legal CSR (compliance-driven) versus normative CSR (discretionary-driven). Using the V/P ratio (analysts’ equity value estimates over stock price) and TP/P ratio (target price over stock price) as proxies for relative optimism, we find analysts are less optimistic than investors regarding legal CSR but more optimistic for normative CSR. Our findings suggest analysts’ optimism bias may contribute to mispricing in normative CSR.

Keywords: Corporate social responsibility; Optimism bias; legal CSR; Normative CSR; Analysts’ information efficiency (search for similar items in EconPapers)
JEL-codes: G14 G41 M14 M41 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:79:y:2025:i:c:s1544612325006117

DOI: 10.1016/j.frl.2025.107350

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