Corporate social performance, analyst stock recommendations, and firm future returns

TLDR

Corporate social performance is often uncertain, so analysts may act as the informational bridge linking it to firm stock returns. The study posits that analysts incorporate corporate social performance into recommendations and that these recommendations mediate the link between corporate social performance and firm stock returns. The authors combined qualitative literature searches and analyst interviews with quantitative analysis of two longitudinal large‑firm samples to support this mediation hypothesis. The study reveals an information‑based mechanism linking corporate social performance to financial performance. © 2013 John Wiley & Sons, Ltd.

Abstract

This study posits that security analysts heed corporate social performance information and factor it into their recommendations to general investors. In particular, as corporate social performance is often uncertain and ambiguous to general investors, analysts may serve as the informational pathway connecting corporate social performance to firm stock returns. Thus, we argue that analyst recommendations mediate the relationship between corporate social performance and firm stock returns. On the basis of not only a qualitative study with literature searches and interviews of stock analysts but also a quantitative study with two longitudinal samples of large firms, we find support for these arguments. Our findings uncover an information-based underlying mechanism for the link between corporate social performance and financial performance. Copyright © 2013 John Wiley & Sons, Ltd.