The link between corporate social responsibility (CSR) and firm performance has received considerable attention in the literature. The results, by and large, have been mixed. While some studies have shown a positive link between CSR and performance, others have found a neutral or even a negative relation (others have found a U-shaped or an inverse U-shaped relation). In this project, my co-author (George Serafeim, Harvard Business School) and I are interested in understanding the channels via which CSR strategic information reaches the capital markets.

In the first paper we try to understand the impact of CSR strategies on analysts’ recommendations in the United States. We have obtained data from a research company, KLD that specializes in collecting CSR data on the 3,000 largest US firms for the period 1993 to 2008. Through the use of robust panel data models with firm, industry and year fixed effects, we find evidence that in earlier time periods, CSR strategies had a negative impact on investment recommendations, whereas for later periods the impact reverses, becoming positive and significant: CSR strengths make analysts more likely to recommend a stock “buy”, documenting a learning process of sorts at the analyst level over time. When we move to the level of individual CSR strategies, we find that a focal firm’s environmental strengths and corporate governance concerns significantly affect analysts’ recommendations: environmental strengths move analysts towards more optimistic recommendations whereas corporate governance concerns, towards more pessimistic recommendations

In subsequent work (and current working papers) we want to explore this link even better: we want to understand differences in CSR strategies and their impact on investment recommendations not just in the US context but also more internationally, and perhaps in relation to country-level CSR characteristics. We would also like to explore the analysts’ perceptions side of the story as well as the interaction with equityholders.

In particular, in this broader stream of research, we see a pipeline of papers focused on each of the following research questions:

• How does the link between CSR strategies and analysts’ recommendations vary across countries and/or regions of the world? (for this paper, we have already obtained CSR data for 2,500 firms around the globe, and we are in the process of running the analysis)

• How do firm-level CSR rankings interact with country-level CSR rankings to affect analysts’ recommendations? In other words, what is the impact of the CSR country context on firm-level CSR strategies?

• How do analysts’ backgrounds and/or individual characteristics and/or cognitive frames affect the way they utilize CSR information (via their recommendations)? (For this paper we are assembling a dataset at the firm-analyst-year level of observation)

• Does the network formed by the (board of) directors of CSR conscious firms differ from the one of firms that do not have high CSR rankings? If yes, then in what ways are the two networks different? How does this network evolve over time in relation to CSR strategies?

• Lastly, we are interested in exploring the implementation of CSR strategies in relation to equity ownership: How and why are CSR strategies affecting or being affected by changes in the equity risk and ownership structure of publicly traded firms (globally)?