The impact of social responsibility disclosure and governance on financial analysts’ information environment

The purpose of this paper is to explore the relationships between corporate social responsibility (CSR) disclosure, corporate governance and financial analysts’ information environment, as proxied by their ability to forecast a firm’s earnings. Hence, we extend prior voluntary disclosure research.

Our paper considers that the determination of CSR disclosure, corporate governance and financial analyst forecasting work are closely intertwined. Therefore, we rely on simultaneous equations to explore these relations.

Findings show that there is a direct relation between both CSR disclosure and corporate governance and financial analysts’ information environment: more disclosure and better governance translate into a tighter consensus in earnings forecasts as well as less dispersion. However, corporate governance substitutes for CSR disclosure in improving analyst forecast precision, thus supporting a comprehensive view of corporate governance that encompasses disclosure. Finally, results also suggest that CSR disclosure, through its effect on governance and analyst following, has an indirect influence on analyst forecast precision. Overall, it appears that both CSR disclosure and good corporate governance attract analysts and improve their ability to forecast earnings.

To the best of our knowledge, our study is the first to investigate the joint effect of corporate governance and CSR disclosure on analyst forecast precision.