Can excellence in corporate social performance improve investors' financial assessments and credibility of managers' forecasts?

Research output: Contribution to journalArticle

4 Citations (Scopus)

Abstract

In contrast to the extensive archival research on the relationship between corporate social performance and financial performance, behavioral studies are scarce. We explore whether excellence in corporate social performance affects investors' judgments of financial assessments (i.e., future profitability, liquidity, and financial risk) and credibility of management's forecasts. We define "excellence in corporate social performance" as the case of a firm simultaneously showing high and stable social performance and being provided with professional assurance on social activity reporting. We design a 2 × 2 experimental design with two control groups by manipulating corporate social performance (high versus low) and assurance (present versus absent), in which investors are asked to provide their judgments on the financial status of the firm. Our results indicate that corporate social performance excellence has an impact on both investors' financial assessments and their reliance on management-forecasted information. Additional analysis shows that corporate social performance excellence is perceived as having a significantly higher impact on investors' financial assessments and their credibility of managers' forecasts in comparison with temporary corporate social performance. Therefore, we find support for the argument that only the combination of superior and stable corporate social performance and reliable corporate social responsibility disclosure pays off.

Original languageEnglish
Pages (from-to)530-555
Number of pages26
JournalAsia-Pacific Journal of Financial Studies
Volume43
Issue number4
DOIs
Publication statusPublished - 2014 Aug

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Corporate social performance
Managers
Credibility
Investors
Excellence
Assurance
Performance excellence
Profitability
Social performance
Experimental design
Financial performance
Financial risk
Corporate Social Responsibility
Liquidity risk
Management information
Disclosure
Management forecasts
Archival research

All Science Journal Classification (ASJC) codes

  • Finance

Cite this

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title = "Can excellence in corporate social performance improve investors' financial assessments and credibility of managers' forecasts?",
abstract = "In contrast to the extensive archival research on the relationship between corporate social performance and financial performance, behavioral studies are scarce. We explore whether excellence in corporate social performance affects investors' judgments of financial assessments (i.e., future profitability, liquidity, and financial risk) and credibility of management's forecasts. We define {"}excellence in corporate social performance{"} as the case of a firm simultaneously showing high and stable social performance and being provided with professional assurance on social activity reporting. We design a 2 × 2 experimental design with two control groups by manipulating corporate social performance (high versus low) and assurance (present versus absent), in which investors are asked to provide their judgments on the financial status of the firm. Our results indicate that corporate social performance excellence has an impact on both investors' financial assessments and their reliance on management-forecasted information. Additional analysis shows that corporate social performance excellence is perceived as having a significantly higher impact on investors' financial assessments and their credibility of managers' forecasts in comparison with temporary corporate social performance. Therefore, we find support for the argument that only the combination of superior and stable corporate social performance and reliable corporate social responsibility disclosure pays off.",
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