Corporate social responsibility and financial analysts: a review of the literature

Purpose - The purpose of this paper is to systematise the current state of research on the association between companies’ corporate social responsibility (CSR) engagement and financial analysts’ company assessment. Additionally, it aims to identify fruitful directions for future research that contribute to a further exploration of the link between CSR and financial analysts. Design/methodology/approach - This study reviews and synthesises existing research on CSR and financial analysts. Based on the research question, “What is the relationship between CSR engagement and financial analysts’ metrics?,” the authors conduct a systematic literature review. The authors search three major databases and use an extensive search term to ensure exhaustive coverage of the field. The paper then systemises the current state of research and identifies knowledge gaps and potential directions for future research. Findings - The review of existing research shows that several studies confirm a positive link between CSR performance and analyst coverage, suggesting that external monitoring through analysts incentivises companies to enhance their CSR engagement. Further, results indicate that a company’s involvement in “sin” industries is linked to lower analyst coverage. Besides, a higher level of CSR disclosure is positively associated with analyst forecast accuracy, thus indicating that the provision of CSR-related information is linked to an enhanced information environment. High levels of CSR performance are associated with more positive recommendations from analysts. However, recent surveys and interview studies on analysts’ perceptions of CSR fail to uniformly support an increasing interest in CSR. Research limitations/implications - For a better understanding of the link between CSR engagement and financial analysts, two fruitful directions for future research are observed. First, future research designs should clearly differentiate between CSR disclosure and CSR performance and take account of interdependencies between them. Second, studies should address behavioural insights into how analysts process information and the influence of individual analyst characteristics on the link between CSR engagement and an analyst’s assessment of a company. Originality/value - This study is the first to review the literature on the relationship between CSR and financial analysts. The association between CSR and financial analysts is particularly interesting given the pivotal role financial analysts play as information intermediaries in financial markets. This study delivers an in-depth understanding of existing studies and their theoretical underpinnings. Based on the existing literature, this paper develops innovative directions for future research.