Signals from CSR competition: The influence of relative CSR performance on analysts’ recommendations

Due to the institutionalization of corporate social responsibility (CSR) and its integration into firm strategy, firms are engaged in fierce competition, which has gained stakeholders' attention. As intermediary stakeholders, security analysts screen information on firms' CSR activities to make more accurate investment recommendations. Integrating signaling through CSR competition and screening theory, we develop a framework wherein firms' relative CSR performance and improvement across two years are viewed as complementary signals reflecting their ability and intent to engage in CSR and affect analysts' recommendations. Using a panel of Chinese listed firms from 2011 to 2019 (n = 15,735 firm-year observations), we find that analysts respond positively to firms' relative CSR performance. Further analyses show that firms' CSR performance improvement has a decreasingly positive effect on analysts’ recommendations, and this effect is more pronounced for firms with higher relative CSR performance. Our study contributes to the literature on CSR and screening theory by highlighting the value of comparative CSR signals and generates practical implications for participants in CSR competitions.