Does the Mindset Induced by Language in Corporate Social Responsibility Reporting Interact with Reporting Style to Influence Investor Judgments?

• In Event: Investor Judgment

Abstract

This study examines the joint effects of mindset induced by Corporate Social Responsibility (CSR) language and CSR reporting style on investor judgments. Results reveal that a “fit” between mindset induced by CSR language and the performance representation contained in a CSR report causes investors to be more willing to invest than when a fit is not present. Further, we find that this effect is driven by investors with a relatively lower ability to understand and use numerical information (i.e., low numerate investors). Consistent with our theory, we also find that low numerate investors report a subjective feeling of processing fluency from a style fit, interpreted as a cue that the positive performance information in a CSR report can be relied on to make the investment judgment, resulting in more extreme positive judgments than when a fit is not present. Overall, our results suggest that language that naturally appears in disclosures can induce an investor mindset and that the “fit” between this mindset and the style of a firm’s subsequent disclosures can subconsciously influence their investment judgments.

Authors

• W. Brooke Elliott, University of Illinois at Urbana–Champaign

• Stephanie Grant, University of Illinois at Urbana–Champaign

• Kristina Rennekamp, University of Illinois at Urbana–Champaign