Phd Thesis: International Perspective: The Impact of Corporate Social Responsibility Reports on Analysts' Coverage and Forecast Properties: Evidence from Ft Global 500

Abstract

For informational perspective, this study intends to examine how informativeness of corporate non-financial disclosures, as a good informational surrogate for financial analysts, on financial analysts’ properties and behaviour that evidenced from standalone corporate sustainability report, released by the top 500 multinational corporations in terms of market capitalization, yearly turnover and profitability, testifying how financial analysts’ data drilling and information-producing processes being influenced by the latest on-rising publication trend, namely corporation social responsibility (hereafter CSR) information. Corporate sustainability reports, especially standalone type, are widely-adopted disclosed on the rise from now on, when checking up with prior empirical documents and archives in same context in past two decades that may provide an another new insight how usefulness and richness of socially and environmentally narrative information for sell-side financial analysts in information-making procedure on forecasting corporate future earnings as many argue that just like normal guys who perceptibly discomfort with lack of information in decision-making process, corporations, as a artificial natural person in the legal view, as well those social and environmental activities are likely assisting them predicting corporate current and future financial performance forecasts as well, thereby capturing the effect of how financial analysts to use such valuable non-10K or 20-K information on the corporate earnings forecasts during their forecasting process seemingly is needy and a must, undoubtedly. Alas, previous academic archives, journals, books, professional articles and etc demonstrate the results of evidential ambiguity, some of them demonstrate inconclusive results and some even show inconsistent with prior work results in different country-specific or country-wide researches in which examination of the impact of corporate financial and non-financial disclosures on analyst following, forecast accuracy and dispersed forecasts they use various disclosure media, including the annual report, corporate website, the conference calls, social and environmental reports for their experimental studies. What is more, they use broader disclosure quality and quantity measurements with various codifying and rating (i.e. equal or researcher-subjective rating) systems via varieties of communication channels such number of pages, % of pages, number of words, number of sentences and scholars self-develop their originally identical research instruments to quantify corporate disclosure quality as well, impounded as a disclosure index or a rating score, in different content areas, namely “content analysis/ textual analysis” to examine the impact of corporate disclosure decision, disclosure quality and disclosure quantity on stock market price responsiveness, corporate cost of capital and financial analysts’ behaviour and so forth. Most of their results support firms do better in their disclosures on corporate financial and non-financial information can improve their uncertainty of corporate information environment, in turn reducing the magnitude information asymmetry in capital markets.The univariate and multivariate results demonstrate that in overall, financial analysts are likely following for firms split off their CSR from annual reports, measured by average number of financial analysts providing earnings per share forecasts one year ahead but a quarter (herein 90 days cut-off) before earnings announcement in that particular period, compared with control groups in which those firms that never issued those reports, after controlling for the firm financial and market performance, corporate characteristics, other institutional factors and fixed effects, reducing the potential omitted correlated effects, thereby reinforcing the validity of the empirical results. Furthermore, likewise investors, financial analysts in their earnings forecasting formulation process are highly covering for firms seeking professional opinions from auditors or hiring other independent professional service providers assurance increasing their credibility and reliability on their sustainability reports and they are also increasingly coverage for richer information providers, due to those reports can provide certain non-financial and financial information assisting financial analysts to examine the corporate current profitability and predict corporate future earnings and those social and environmental activities can actually affect corporate current and future financial performance, so that financial analysts are more using corporate social and environment information during their forecasting process. For forecast accuracy model specifications, forecast accuracy has been improved for firms provide more extensive CSR information to public but firms whether assured their corporate sustainability reports and how many pages of corporate sustainability reports issued are seemingly not statistically significantly influencing the extent of the financial analysts’ forecast precision. For forecast dispersion model specifications, in all firms that issue corporate sustainability reports, those reports being assured by the third parties or professional bodies and issuance of more number of pages of corporate sustainability reports are likely migrating uncertainty of corporate information environment financial analysts who are facing with.To my knowledge, this empirical study yields the first evidence on this causality. Chapter 9 provides the results of robustness tests in this paper performed whether all dependent, independent and control variables are best fitted in ordinary least squared regression models mainly adopted in this study, including the examination of autocorrelation, potential omitted correlated problems, normality of residuals, outliners, colinearity, and heteroscedasticity. In robustness, all variables are roughly suited in ordinary least square regression models, some of which model specifications are, however, subject to the heteroscedasticity problem, hence this study will also, for complemenance and remediation purposes, adopt the generalized method of moments (GMM) to verify the validation of the previous regression results done in the chapter 8. Chapter 9 provides another-remedial for the above mentioned regression model problems, thereby demonstrating more comparably reliable results and improve the testing power of the models and last but not least the last chapter uses the Newey-West Approach with transformation of all control variables so as to remediate all loopholds of OLS assumptions such as the non-normality, heteroscedasticity of standard errors and downward autocorrelation of control variables, by which mean reducing the impact of those effects on the results in chapter 8 and 9 as above shown. Additionally, this study already using Variance of Residual weight least square approach attempt to alleviate the extent of heteroscedasticity as mentioned earlier but albert futile resolving the normality assumption of OLS after controlling firm performance, corporate institutional factors and financial analysts' characteristics. so using other approaches like Logistic regressions, General method of Moments, Hayes and Cai, Newey West, Logit regression, Mann-Whitney to address the heterocedastricity, normality of error terms, and autocorrelation etc econometric tricks seem to be considerably necessary for this study.