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The Corporate Social Responsibility Information Environment: Examining the Value of Financial Analysts’ Recommendations

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  • Changhee Lee

    (Ramapo College of New Jersey)

  • Dan Palmon

    (The State University of New Jersey, Rutgers)

  • Ari Yezegel

    (Bentley University)

Abstract

This study examines the relationship between corporate social responsibility (CSR)-related information and the value of financial analysts’ stock recommendations. The information environment in which analysts operate in is affected by CSR-related reports that companies voluntarily issue as well as information that becomes available through third-party analysis and rating institutions. We find an inverse relationship between the value of both upgrade and downgrade revisions and the supply of CSR-related information compiled by third-party institutions, suggesting that CSR-related data are associated with a richer information environment that makes it more challenging for analysts to issue informative recommendations, thereby mitigating their contribution to the price discovery process. We further find that the value of analysts’ recommendation revisions is lower for companies that voluntarily issue CSR-related reports compared to those that do not make such disclosures and that the overall effect of CSR on the informativeness of analysts is stronger in the recent years. Our findings have implications for the evolution of CSR reporting as the incorporation of CSR-related information into market prices legitimizes the relevance of such reports. Furthermore, these findings contribute to our understanding of the role and value of information intermediaries in changing information environments.

Suggested Citation

  • Changhee Lee & Dan Palmon & Ari Yezegel, 2018. "The Corporate Social Responsibility Information Environment: Examining the Value of Financial Analysts’ Recommendations," Journal of Business Ethics, Springer, vol. 150(1), pages 279-301, June.
    • Handle: RePEc:kap:jbuset:v:150:y:2018:i:1:d:10.1007_s10551-016-3197-4
    DOI: 10.1007/s10551-016-3197-4
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    1. Piotr Bolibok, 2021. "The Impact of Social Responsibility Performance on the Value Relevance of Financial Data in the Banking Sector: Evidence from Poland," Sustainability, MDPI, vol. 13(21), pages 1-19, October.
    2. Taufiq Choudhry & Gishan Dissanaike & Ranadeva Jayasekera & Woo-Young Kang & Matthias Nnadi, 2021. "Loss sensitive investors and positively biased analysts in Hong Kong stock market," Review of Quantitative Finance and Accounting, Springer, vol. 57(4), pages 1345-1371, November.
    3. Muneer Mohamed Saeed Al Mubarak, 2020. "Five Senses for Effective and Sustainable Corporate Social Responsibility Strategy," International Journal of Economics and Financial Issues, Econjournals, vol. 10(1), pages 67-72.
    4. del Río, Cristina & Ferrer, Elena & López-Arceiz, Francisco J., 2024. "Analyst optimism and market sentiment: Evidence from European corporate sustainability reporters," Research in International Business and Finance, Elsevier, vol. 69(C).
    5. Asif Saeed & Robert Sroufe, 2021. "Performance, Risk, and Cost of Capital: Trends and Opportunities for Future CSR Research," JRFM, MDPI, vol. 14(12), pages 1-20, December.

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