The impact of corporate social responsibility on investment recommendations: Analysts' perceptions and shifting institutional logics

TLDR

The study investigates how corporate social responsibility ratings influence sell‑side analysts’ future earnings forecasts, positing that viewing CSR as an agency cost leads to pessimistic recommendations for high‑CSR firms and that a stakeholder‑focused shift over time alters these perceptions. Using a 15‑year sample of U.S. firms, the authors find that in the early 1990s analysts issued more pessimistic recommendations for high‑CSR firms, but over time they became increasingly optimistic, with the highest‑status analysts leading this shift.

Abstract

We explore the impact of corporate social responsibility (CSR) ratings on sell-side analysts' assessments of firms' future financial performance. We suggest that when analysts perceive CSR as an agency cost they produce pessimistic recommendations for firms with high CSR ratings. Moreover, we theorize that, over time, the emergence of a stakeholder focus shifts the analysts' perceptions of CSR. Using a large sample of publicly traded U.S. firms over 15 years, we confirm that, in the early 1990s, analysts issue more pessimistic recommendations for firms with high CSR ratings. However, analysts progressively assess these firms more optimistically over time. Furthermore, we find that analysts of highest status are the first to shift the relation between CSR ratings and investment recommendation optimism. Copyright © 2014 John Wiley & Sons, Ltd.