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The Impact of Corporate SRI on Investment Recomendations - Harvard

The Impact of Corporate SRI on Investment Recomendations - Harvard

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Published by: jordijauma on Sep 14, 2010
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Copyright © 2010 by Ioannis Ioannou and George SerafeimWorking papers are in draft form. This working paper is distributed for purposes of comment anddiscussion only. It may not be reproduced without permission of the copyright holder. Copies of workingpapers are available from the author.
The Impact of CorporateSocial Responsibility onInvestment Recommendations
Ioannis IoannouGeorge Serafeim
 Working Paper
Ioannis Ioannou
 London Business SchoolGeorge Serafeim
 Harvard Business SchoolAugust, 2010
 Best Paper Proceedings, Academy of Management 2010Social Issues in Management (SIM) Division)
Using a large sample of publicly traded US firms over 16 years, we investigate theimpact of corporate socially responsible (CSR) strategies on security analysts’recommendations. Socially responsible firms receive more favorablerecommendations in recent years relative to earlier ones, documenting a changingperception of the value of such strategies by the analysts. Moreover, we find thatfirms with higher visibility receive more favorable recommendations for their CSRstrategies and that analysts with more experience, broader CSR awareness or thosewith more resources at their disposal, are more likely to perceive the value of CSRstrategies more favorably. Our results document how CSR strategies can affectvalue creation in public equity markets through analyst recommendations.
Assistant Professor of Strategic and International Management, London Business School, Regent’s Park, NW1 4SA, London,United Kingdom. Email: iioannou@london.edu, Ph: +44 20 7000 8748, Fx: +44 20 7000 7001.
Assistant Professor of Business Administration, Harvard Business School, Soldiers’ Field Road, Morgan Hall 381, 02163Boston, MA, USA. Email:gserafeim@hbs.edu, Ph: +1 617 495 6548, Fx: +1 617 496 7387.We are grateful to Constantinos Markides, and seminar participants at the research brown bag (SIM area) of the London BusinessSchool, the academic conference on Social Responsibility at University of Washington - Tacoma, the 2010 European Academyof Management Conference, and the 2010 Academy of Management Conference. Ioannou acknowledges financial support fromthe Research and Materials Development Fund (RAMD) at the London Business School. All remaining errors are our own.
In recent years, there has been a growing interest, both in the academic as well as thebusiness world, around the issue of Corporate Social Performance (CSP) - a multidimensionalmeasure (Carroll, 1991; Griffin and Mahon, 1997) of corporate social responsibility (CSR) thatcaptures firm actions aimed at engaging a broader set of stakeholders and ranging across a widevariety of inputs, internal routines or processes, and outputs (Waddock and Graves, 1997; Wood,1991; Aupperle et al., 1985; Wolfe and Aupperle, 1991; Aupperle, 1991; Miles, 1987; Gephart,1991). In the literature to date, perhaps the most studied aspect of CSR has been its (potential)link to Corporate Financial Performance (CFP). Much work has focused on understanding thislink and a number of theoretical insights and empirical findings have been revealed in theprocess. However, the causal directionality of this link has by no means been established
.Different theories predict conflicting directionality and a number of empirical studies have foundinconsistent results.In this paper we seek to shed more light on the broader issue of whether CSR strategiesresult in value creation and to do so, we focus on the role of sell-side analysts as importantinformation intermediaries, functioning at the interface between the firms’ CSR strategies andthe capital markets. The overarching argument of our work therefore, is that if sociallyresponsible behavior creates value for firms in the long-run, then such value creation will bereflected in the investment recommendations of the analysts. To be more specific, in our primaryanalysis we evaluate the overall impact of CSR strengths and concerns on sell-side analysts’recommendations, and subsequently, we investigate how analysts’ as well as firms’
Margolis, Elfenbein and Walsh (2007) conducted a meta-analysis of 167 studies and find an overall effect that is positive, yetsmall

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