Corporate social responsibility intensity, management earnings forecast accuracy, and investor trust: Evidence from Japan

Abstract

This study examines whether and how corporate social responsibility (CSR) intensity affects investment performance directly, as a signal of investor trust, and indirectly, by impacting management earnings forecasts accuracy. We find that investors benefit from high CSR firms as they avoid unexpected stock volatility while paying the cost of CSR by lowering returns. The results suggest that CSR intensity stabilizes stock returns for high CSR firms in the long run and moderates management disclosure bias in the short run. Our findings imply that CSR activities based on stakeholder relationships would help signal firm-level trust and restrain myopic investment in the capital market. Stakeholder engagement in order to build investor trust is not only essential for corporate sustainability and long-term success but also a key determinant in well-functioning capital markets with unstable public trust in business and finance.

Unleashing the Role of CSR and Employees’ Pro-Environmental Behavior for Organizational Success: The Role of Connectedness to Nature

“…As the competitive landscape has changed in the current era, it was reported that both the consumers and investors now consider the social engagement of an organization before making a purchase or investment decision. In this regard, several studies have reported that socially responsible organizations, irrespective of the size or sector, are well placed in the current competitive landscape compared to the organizations that do not adopt responsible practices [62,136,137].…”

“…Referring to this, Bartlett and Preston [61] acknowledged that the CSR orientation of an organization could reduce the conflict of interest between different stakeholders, which, in turn, increases its financial stability. Moreover, the CSR activities of an organization may provide an additional financial resource as the creditors and investors in the current era also evaluate a business based on its social activities for the betterment of society [62]. Thus, a socially responsible organization is expected to access different capital sources [63].…”

Do sustainability disclosure mechanisms reduce market myopia? Evidence from European sustainability companies

“…In the context of corporate sustainability, the management of these relationships and cooperation among stakeholders play a key role (Hörisch et al, 2014;Matinaro & Liu, 2017;Roca-Puig, 2019;Schaltegger, Lüdeke-Freund, & Hansen, 2012;Whelan & Fink, 2016). Not only do they provide insurance-like protection of the company's ability to sustain financial performance, they also contribute to corporate sustainability and long-term success (Suto & Takehara, 2020). Similarly, legitimacy theory offers a theoretical explanation for the positive effects of sustainability practices (Deegan, 2019;Dumay, De Villiers, Guthrie, & Hsiao, 2018;Silva, 2021).…”

The Association between Management Earnings Forecast Deviation, Earnings Management, and the Stock Prices: Evidence from the Emerging Markets

“…Other studies reported similar results, by mentioning that stock price will be more stable when management earnings forecasts met or beaten (Kross et al, 2011;Merkley et al, 2013;Rezazadeh, 2020;Vahedi, 2020). Moreover, Suto, M. and Takehara, H. (2020) found that management earnings forecasts accuracy enhances the investor trust, and stock market stability which indirectly reflected in the reliability of stock prices. Another study reported that management manipulates earnings forecasts to affect the share price by providing optimistic forecasts in case of its desire to increase stock price and providing pessimistic forecasts if the desire to reduce share price.…”