Analyst coverage, corporate social responsibility, and firm risk

Abstract

This article examines the empirical association between analyst coverage and corporate social responsibility (CSR) by investigating their simultaneous and causal effects, and its joint effects of CSR engagement and analyst coverage on firm risk. We find a positive association between the level and change of CSR engagement and the level and change of analyst coverage after considering simultaneity and causality. Based on the first-difference approach, we further find that the change in analyst following from the previous year affects the change in CSR in the current period, whereas the change in CSR from the previous period does not influence the change in analyst following in the current period. Furthermore, we find that the change in CSR engagement as well as the interaction effect of changes in CSR and analyst coverage reduces the change of firm risk. When we examine the CSR strengths and concerns separately, analyst following does not significantly influence firms' CSR strength but CSR concern activities decreases significantly as firms have more analyst followings. We further find the mediating role of financial analysts between CSR concerns (but not CSR strengths) and firm risk. We maintain that analysts provide indirect but additional social pressure to the firms to eventually reduce their irresponsible activities. Taken together, we interpret these results to support the stakeholder theory-based conflict-resolution explanation that considers CSR engagement as a vehicle to reduce conflicts of interest between managers and noninvesting stakeholders but not the overinvestment hypothesis that views CSR as a waste of valuable resources at the cost of shareholders. bs_bs_banner Business Ethics: A European Review

Does Analyst Coverage Enhance Firms’ Corporate Social Performance? Evidence from Korea

“…So according this view, higher analyst coverage increases a stock's visibility, and as such, it is also likely to increase public awareness [18,41]. So, prior papers investigated that analyst coverage with cost of equity capital [42], firm value [41], irresponsible activities [43] and tax aggressiveness [18] in line of this view. Especially Jo and Harjoto [43] suggest that analysts provide indirect but additional social pressure to the firms to eventually reduce firms' irresponsible activities.…”

Corporate social responsibility disclosure quality and analyst forecast

“…Nichols and Wieland (2009) confirm nonfinancial disclosures provide credible and value-relevant information and reduce the uncertainty about future earnings. Jo and Harjoto (2014) find that the change in csr engagement as well as the interaction effect of changes in csr and analyst coverage reduces the change of firm risk. Firms with low risk may be better able to afford to act in a socially responsible manner (McGuire et al, 1988).…”

“…Sell-side analysts recommend brokers, managers, institutional investors and other stakeholders to achieve their expected goals and maximize utility. Jo and Harjoto (2014) maintain that analysts provide indirect but additional social pressure to the firms to eventually reduce their irresponsible activities.…”

“…Analysts who provide better earnings forecasts will play a more active monitoring role (Yu, 2009). Empirical surveys have shown that there has a significantly positive effect of analyst following on analyst forecast accuracy, negative effect of analyst following on forecast error and dispersion (Lang and Lundholm, 1996;Botosan, 1997;Hope, 2003;Bai, 2009;Jo and Harjoto, 2014).…”

Social Disclosure E Retornos Anormais: Um Estudo De Eventos Em Empresas Brasileiras Abertas No Período De 2005 a 2012

“…Em princípio, os resultados apontados pelas pesquisas partem da ideia de que empresas consideradas como possuidoras de melhor reputação perante os investidores venham a inspirar mais confiança e, assim, a receber mais investimentos, pois os investidores assumiriam menor risco ao aplicar seu capital nestas empresas (RICHARDSON; WELKER; HUTCHINSON, 1999;DHALIWALL et. al., 2011;JO;HARJOTO, 2014).…”