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Corporate Social Responsibility and Earnings Forecasting Unbiasedness

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Abstract

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.

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Bibliographic Info

Paper provided by Tor Vergata University, CEIS in its series CEIS Research Paper with number 233.

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Length: 32 pages
Date of creation: 04 May 2012
Date of revision: 08 Feb 2013
Handle: RePEc:rtv:ceisrp:233

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Postal: CEIS - Centre for Economic and International Studies - Faculty of Economics - University of Rome "Tor Vergata" - Via Columbia, 2 00133 Roma
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Web page: http://www.ceistorvergata.it
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Postal: CEIS - Centre for Economic and International Studies - Faculty of Economics - University of Rome "Tor Vergata" - Via Columbia, 2 00133 Roma
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Web: http://www.ceistorvergata.it

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Keywords: Earnings per Share; Analyst Forecast; Corporate Social Responsibility.;

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Cited by:
  1. Annalisa Fabretti & Stefano Herzel & Mustafa C. Pinar, 2014. "Delegated Portfolio Management under Ambiguity Aversion," CEIS Research Paper 304, Tor Vergata University, CEIS, revised 06 Feb 2014.

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