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.
Highlights
In recent years, a growing number of companies are adopting various corporate social responsibility (CSR) initiatives - the voluntary incorporation of social and environmental issues into a company’s business model and operations (European Commission 2001) – in an attempt to meet the needs and expectations of a range of stakeholders, including but not confined to the company’s shareholders
Our theory derives from a neo-institutional perspective which argues that organizational policies achieve legitimacy to the extent that they are consistent with prevailing institutional logics or ‘historically-variant sets of assumptions, beliefs, values, and rules by which individuals ... interpret organizational reality and what constitutes appropriate behavior’ (Thornton & Ocasio (1999): p.805; see Zajac & Westphal (2004): p.433)
We posit that within an institutional context whereby CSR initiatives are perceived as serving managerial objectives rather than serving shareholders’ interests (Atkinson & Galaskiewicz, 1988; Galaskiewicz, 1997), analysts’ reactions in the form of investment recommendations will be more pessimistic the higher the CSR scores of the focal company are
Summary
"The Impact of Corporate Social Responsibility on Investment Recommendations: Analysts' Perceptions and Shifting Institutional Logics." Strategic Management Journal (forthcoming). The Impact of Corporate Social Responsibility on Investment Recommendations: Analysts’ Perceptions and Shifting Institutional Logics
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