Volume 27, Issue 6 p. 3047-3059
RESEARCH ARTICLE

Corporate social responsibility intensity, management earnings forecast accuracy, and investor trust: Evidence from Japan

Megumi Suto

Megumi Suto

Graduate School of Business and Finance, Waseda University, Tokyo, Japan

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Hitoshi Takehara

Corresponding Author

Hitoshi Takehara

Graduate School of Business and Finance, Waseda University, Tokyo, Japan

Correspondence

Hitoshi Takehara, Graduate School of Business and Finance, Waseda University, 1-6-1 Nishiwaseda, Shinjyuku-ku, Tokyo 169-8050, Japan.

Email: takehara@waseda.jp

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First published: 09 August 2020
Citations: 14

Funding information: JSPS, Grant/Award Number: 19K01761

Abstract

This study examines whether and how corporate social responsibility (CSR) intensity affects investment performance directly, as a signal of investor trust, and indirectly, by impacting management earnings forecasts accuracy. We find that investors benefit from high CSR firms as they avoid unexpected stock volatility while paying the cost of CSR by lowering returns. The results suggest that CSR intensity stabilizes stock returns for high CSR firms in the long run and moderates management disclosure bias in the short run. Our findings imply that CSR activities based on stakeholder relationships would help signal firm-level trust and restrain myopic investment in the capital market. Stakeholder engagement in order to build investor trust is not only essential for corporate sustainability and long-term success but also a key determinant in well-functioning capital markets with unstable public trust in business and finance.

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