A comparison of analysts’ and investors’ information efficiency of corporate social responsibility activities

Grace Il Joo Kang, Kyongsun Heo and Sungmin Jeon

Sustainability Accounting, Management and Policy Journal, 2024, vol. 15, issue 2, 547-572

Abstract: Purpose - This paper aims to examine the extent to which sell-side analysts efficiently incorporate firms’ corporate social responsibility (CSR) activities into their earnings forecasts. In addition, this paper also investigate the CSR information efficiency of analystsvis-à-visthat of investors. Design/methodology/approach - This paper measures CSR activities by using CSR strength and CSR concern scores from the Morgan Stanley Capital International Environmental, Social and Governance database. This paper uses analysts’ earnings forecast errors and dispersion as proxies for their information efficiency. To compare the CSR information efficiency of analysts to that of investors, this paper uses the Vt/Pt ratio, which is the equity value estimates inferred from analysts’ earnings forecasts (a proxy for analysts’ CSR information efficiency) to the stock price of the focal company (a proxy for investors’ CSR information efficiency). Findings - The regression analysis indicates that analysts’ earnings forecasts are optimistically biased and more dispersed for firms with positive CSR activities. The paper also finds that analysts’ forecasts are more optimistically biased than investors in interpreting CSR activities. Practical implications - The lack of standardized protocols in CSR reporting and activities has raised the risk of mispricing by analysts, threatening the stability of sustainable investments. This paper suggests that regulators and standard-setters should establish a uniform framework governing firms’ CSR activities, along with their reporting and measurement, to ensure more consistent and reliable evaluations of CSR practices. Social implications - Analysts’ mispricing of CSR activities may distort sustainable investing, as it can overly focus on the positive impacts of stakeholder theory, overlooking agency theory’s warnings about managerial self-interest. Investors need to assess CSR efforts with a dual perspective, acknowledging their societal value but also examining their alignment with shareholder interests. Originality/value - To the best of the authors’ knowledge, this research is the first to assess the efficiency of analysts versus investors in processing CSR information amidst growing sustainable investment interests. Furthermore, building on Dhaliwalet al.(2012), which found that voluntary CSR disclosures correlate with more accurate analyst forecasts, this research provides fresh perspectives on the evolving nature of how analysts assimilate CSR information over time.

Keywords: Corporate social responsibility; Financial analysts; Forecast efficiency; Accuracy; Dispersion (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:sampjp:sampj-02-2023-0079

DOI: 10.1108/SAMPJ-02-2023-0079

Access Statistics for this article

Sustainability Accounting, Management and Policy Journal is currently edited by Prof Carol Adams

More articles in Sustainability Accounting, Management and Policy Journal from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().