The Effect of Explicit Assessment of Corporate Social Responsibility Performance on Investors’ Valuation Judgments

• In Event: DSFI no. 2

Abstract

Prior research suggests that investors may unintentionally incorporate CSR performance
into their valuation judgments. In this study, we use two experiments to test the extent to
which “affect-as-information” broadly characterizes how CSR performance influences
investor judgments. In Experiment 1, we begin by examining how unsophisticated
investors respond to CSR performance. In contrast to prior research using MBA
participants, we find no evidence that explicit assessment of CSR performance reduces
investors’ reaction to CSR performance. In all conditions, CSR performance significantly
affects investors’ valuation judgments. While we find evidence that this effect is
mediated by affective responses to CSR performance, we do not find evidence that this
effect is unintended, suggesting that affective responses may be informative of the
perceived informational content in CSR performance. In Experiment 2, we explore
whether affect as information might yet characterize the behavior of a subset of investors:
those who are high in faith in intuition. Based on psychology research, these individuals
are particularly susceptible to using affect as information. However, once again, we find
no evidence that the impact of CSR performance on investor judgments is driven by
unintended reliance on affect as information, even among those who are high in faith in
intuition. Our study contributes to the extant accounting literature CSR performance by
suggesting boundary conditions to the unintended consequences of CSR reporting noted
in prior research and indicating an alternative view of the role of affect in how investors
process CSR information.

Authors

• Jeffrey Hales, Georgia Institute of Technology

• Siman Li, Georgia Institute of Technology