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Analysts' vs. investors' optimism bias in legal and normative CSR

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  • Kang, Grace Il-Joo
  • Yoo, G-Song

Abstract

This study examines optimism bias in how analysts and investors assess corporate social responsibility (CSR). Prior research documents this bias separately, but we provide a direct comparison, showing their biases differ based on managers’ underlying motivation: legal CSR (compliance-driven) versus normative CSR (discretionary-driven). Using the V/P ratio (analysts’ equity value estimates over stock price) and TP/P ratio (target price over stock price) as proxies for relative optimism, we find analysts are less optimistic than investors regarding legal CSR but more optimistic for normative CSR. Our findings suggest analysts’ optimism bias may contribute to mispricing in normative CSR.

Suggested Citation

  • Kang, Grace Il-Joo & Yoo, G-Song, 2025. "Analysts' vs. investors' optimism bias in legal and normative CSR," Finance Research Letters, Elsevier, vol. 79(C).
    • Handle: RePEc:eee:finlet:v:79:y:2025:i:c:s1544612325006117
    DOI: 10.1016/j.frl.2025.107350
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    Keywords

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    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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