Corporate Social Responsibility and Earnings Forecasting Unbiasedness
Becchetti LeonardoCiciretti RoccoGiovannelli Alessandro
CEIS Research Paper
We investigate the relationship between Corporate Social Responsibility (hereafter CSR) and I/B/E/S analysts' earnings per share (EPS) forecasts using a large sample of US firms for the 1992-2011 period. Based on literature findings we decompose the CSR effect into four factors: accounting opacity, corporate governance, stakeholder risk, and overinvestment. We document that all of them significantly affect both the absolute forecast error on EPS and its standard deviation controlling for forecast horizon, number of analysts and forecasts, and for year, industry, broker house effects. Consistently with our ex ante hypotheses, overinvestment, stakeholder risk and accounting opacity have a positive effect increasing both dependent variables, while corporate governance quality has a negative effect. A crucial aspect of our findings is that high CSR quality in terms of the four factors (i.e. accounting transparency, high corporate governance quality, stakeholder risk mitigation and absence of overinvestment) contributes to making earning forecasts unbiased as unbiasedness is generally met in the subsample of the top 33 percent CSR quality companies, while it is markedly violated in the subsample of the bottom 33 percent CSR companies.
Keywords: Earnings per Share; Analyst Forecast; Corporate Social Responsibility
JEL codes: D84; E44; F30; G17; C53
Date: Friday, May 4, 2012
Revision Date: Friday, February 8, 2013