Nonfinancial Disclosure and Analyst Forecast Accuracy: International Evidence on Corporate Social Responsibility Disclosure

Abstract

We examine the relationship between disclosure of nonfinancial information and analyst forecast accuracy using firm-level data from 31 countries. We use the issuance of stand-alone corporate social responsibility (CSR) reports to proxy for disclosure of nonfinancial information. We find that the issuance of stand-alone CSR reports is associated with lower analyst forecast error. This relationship is stronger in countries that are more stakeholder-oriented—i.e., in countries where CSR performance is more likely to affect firm financial performance. The relationship is also stronger for firms and countries with more opaque financial disclosure, suggesting that issuance of stand-alone CSR reports plays a role complementary to financial disclosure. These results hold after we control for various factors related to firm financial transparency and other potentially confounding institutional factors. Collectively, our findings have important implications for academics and practitioners in understanding the function of CSR disclosure in financial markets. Data Availability: The data are publicly available from the sources identified in the paper.

Corporate Social Responsibility: Country-Level Predispositions and the Consequences of Choosing a Level of Disclosure

“…Empirical evidence also links CSR disclosure with positive economic outcomes, such as reduced cost of equity capital (Dhaliwal et al 2011), and increased analyst forecast accuracy (Dhaliwal et al 2012). However, the prior research does not consistently report a positive relationship between CSR and economic outcomes.…”

“…Simnett et al 2009, Dhaliwal et al 2012). The results of these studies could potentially be driven by a few outlier country-level measures.…”

“…Prior studies use a CSR disclosure measure that is derived from one disclosure source, such as annual reports (Ingram and Frazier 1980), 10K reports (Cho and Patten 2007), websites (Clarkson et al 2008), or stand-alone reports (Dhaliwal et al 2011(Dhaliwal et al , 2012Simnett et al 2009); use an indicator variable with limited variability (e.g. Dhaliwal et al 2011Dhaliwal et al , 2012; or are based on self-constructed indexes (e.g.…”

Corporate social responsibility and financial performance relationship: a review of measurement approaches

“…Although the number of companies issuing stand-alone CSR reports has increased dramatically (Dhaliwal, Radhakrishnan, Tsang, & Yang, 2012), in most jurisdictions CSR reporting is not mandatory (some exceptions include France, Denmark and Sweden) (Tschopp & Nastanski, 2014). In the EU, this is currently changing with the directive on disclosure of non-financial and diversity information.…”

Corporate Social Responsibility Reports: A Review of the Recent Accounting Literature

“…Moreover, these analysts achieve lower analyst forecast errors and dispersion" (p. 59). Dhaliwal, et al (2012) reported that "the issuance of stand-alone CSR reports is associated with lower analyst forecast error" (p. 723). There was no detailed examination of the contents of CSR reports in either of these studies; rather, CSR reporting was operationalized as just the presence or absence of a report.…”