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Erschienen in: Journal of Business Ethics 4/2019

03.01.2017 | Original Paper

Corporate Social Responsibility Report Narratives and Analyst Forecast Accuracy

verfasst von: Volkan Muslu, Sunay Mutlu, Suresh Radhakrishnan, Albert Tsang

Erschienen in: Journal of Business Ethics | Ausgabe 4/2019

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Abstract

Standalone corporate social responsibility (CSR) reports vary considerably in the content of information released due to their voluntary nature. In this study, we develop a disclosure score based on the tone, readability, length, and the numerical and horizon content of CSR report narratives, and examine the relationship between the CSR disclosure scores and analyst forecasts. We find that CSR reporters with high disclosure scores are associated with more accurate forecasts, whereas low score CSR reporters are not associated with more accurate forecasts than firms who do not issue CSR reports. The findings are robust to controlling for firm characteristics including CSR activity ratings and financial narratives. The findings are driven by experienced CSR reporters rather than first-time CSR reporters. Together, our findings suggest that the content of CSR reports helps to improve analyst forecast accuracy, and this relationship is more pronounced for CSR reports with more substantial content.

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Fußnoten
1
These reports take different names such as (corporate) sustainability reports (Ioannou and Serafeim 2012; Simnett et al. 2009), accountability reports (Ramanna 2013), and responsibility reports (Corporate Register).
 
2
For example, a study by Governance & Accountability Institute (the U.S. data partner of Global Reporting Initiative) shows a large contextual variation in CSR reports across firms and industries (See http://​www.​ga-institute.​com/​research-reports/​2014-sustainability-what-matters.​html).
 
3
GRI has pioneered a comprehensive CSR reporting framework that is used worldwide. GRI seeks to improve comparability, credibility, and relevance of CSR information disclosed by different firms and thus to improve users’ understanding of sustainability-related risks and opportunities.
 
4
KLD provides social screenings and performance rating of firms via its reports and socially screened mutual funds. KLD’s CSR performance database is used widely in the literature (e.g., Hillman and Keim 2001; Chatterji et al. 2009; Dhaliwal et al. 2011; Kim et al. 2012).
 
5
Cho et al. (2010) and Plumlee et al. (2014) are notable exceptions. Cho et al. (2010) develop an index of optimism bias and uncertainty in 10-K narratives pertaining to environmental disclosure. Consistent with the GRI disclosure framework, Plumlee et al. (2014) develop a disclosure score of voluntary environmental disclosures for a sample of U.S. firms in five industries. Specifically, Plumlee et al. (2014) show that voluntary environmental disclosure score is associated with firm value. They further partition the disclosure score by disclosure type (hard/objective and soft/subjective) and disclosure nature (whether the hard/soft disclosure is related to positive/neutral/negative environmental issues). In contrast to these studies, our disclosure score includes all CSR activities reported on the standalone CSR reports.
 
6
GRI is the most successful attempt to standardize CSR reporting. The latest GRI guidelines (GRI4) divide CSR reporting into economic, environment, and social categories, with social category further divided into sub-categories of labor practices and decent work, human rights, society, and product responsibility. Furthermore, auditing standards for CSR reporting have recently been developed. For example, the U.K. Institute of Social and Ethical Accountability developed AA1000 Assurance Standard, and the International Auditing and Assurance Standards Board developed the International Standard on Assurance Engagements 3000. Given the lack of an enforced standard CSR reporting, the auditing standards attempt to verify processes.
 
7
While a universal notion of disclosure quality does not exist, the conceptual frameworks of the International Accounting Standards Board (IASB) and Financial Accounting Standards Board (FASB) point to various desirable aspects of disclosure such as understandability, relevance, reliability, and comparability (Botosan 2004). There are some notable attempts to measure disclosure score. For instance, Beretta and Bozzolan (2008) use concepts of width (i.e., coverage and dispersion of different topics that qualify a firm’s business model) and depth (i.e., insights related to performance) of disclosure besides quantity of disclosure.
 
8
Through our review of analysts’ research reports, we do not find explicit references to disclosure quality of firms’ CSR reports. However, we find frequent references to firms’ CSR activities, especially environmental activities. Analysts likely gather information about firms’ CSR activities from firms’ disclosures, including CSR reports.
 
9
When we examine the association between narratives in CSR reports and analysts’ forecast dispersion, we find results that are qualitatively similar to that of forecast accuracy. Specifically, analysts’ forecast dispersion is lower among firms with high CSR disclosure scores.
 
10
These lists have been increasingly used in the accounting and finance studies. Li (2010a) suggests that alternative lists, such as Diction, General Inquirer, and the Linguistic Inquiry and Word Count, do not work well for corporate filings. Given that we examine a capital market consequence of CSR reports, we believe the financial tone of the narratives is more appropriate than using a more general list.
 
11
We use other readability measures (Li 2008), i.e., Fog, Flesch-Kincaid, and Flesch reading ease indices, and find similar results to those reported.
 
12
KLD rates CSR performance of a large number of firms by using surveys, corporate reports, and news articles. KLD rates CSR performance on seven categories: corporate governance, community, diversity, employee relations, environment, product, and an exclusionary screen for firms deriving revenues from “sin activities” such as alcohol, gambling, and tobacco. When summing up all the positive and negative indicators, we do not consider the corporate governance dimension of the KLD ratings because information transparency is part of that score, and including this dimension could induce a mechanical association between our disclosure score and analyst forecasts accuracy. In robustness tests, we include the corporate governance dimension and find similar results.
 
13
Companies in three of the Fama–French 48 industries do not publish any CSR reports. A total of 173 observations from those industries are dropped from the selection model because of perfect prediction; therefore, the sample size used in multivariate analyses drops from 24,020 to 23,847.
 
14
Although year-fixed effects control for time-invariant characteristics, the 2008 financial crisis may introduce bias. All our inferences remain the same when we repeat our analyses in the pre-crisis period.
 
15
The report entitled “2012 Corporate ESG/Sustainability/Responsibility Reporting-Does It Matter? Analysis of S&P 500 Companies’ ESG Reporting Trends and Capital Markets Response” is available at http://​www.​ga-institute.​com/​research-reports/​2012-corporate-esg-sustainability-responsibility-reporting-does-it-matter.​html.
 
16
We use our Java based textual analysis algorithm to calculate 10-K optimism, pessimism, readability, and length scores. Since this requires extensive resources, we limit the sample period to years 2000–2009. We do not consider numerical and horizon content in the 10-K, because part of numerical and horizon content is mandated (e.g., tables). Appendix 1 includes definition of variables.
 
17
CSR-S Monitor is a Weissman Center of International Business Project at Baruch College, City University of New York, New York.
 
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Metadaten
Titel
Corporate Social Responsibility Report Narratives and Analyst Forecast Accuracy
verfasst von
Volkan Muslu
Sunay Mutlu
Suresh Radhakrishnan
Albert Tsang
Publikationsdatum
03.01.2017
Verlag
Springer Netherlands
Erschienen in
Journal of Business Ethics / Ausgabe 4/2019
Print ISSN: 0167-4544
Elektronische ISSN: 1573-0697
DOI
https://doi.org/10.1007/s10551-016-3429-7

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