AAA Spark Meeting of Regions

CSR Report Readability, Divergence of Analysts’ Beliefs, and Analyst Recommendations

• In Event: CSR: Institutional Monitoring and Earnings Quality

Abstract

We examine whether and how the readability of CSR reports affects divergence of analysts’ beliefs and the ability of analyst recommendations to predict future returns. We find that more readable CSR reports are associated with less divergence of analysts’ beliefs and improve the ability of analyst recommendations to predict future returns. Further, the effects of CSR report readaiblity on divergence of analysts’ beliefs and the return predictibilty of analyst recommendations are more pronounced for firms with lower CSR performance. Our results are robust to using alternative measures of CSR report readability, controlling for CSR performance and 10-K readability, and addressing the self-selection bias. Overall, this study highlights the important role of CSR report readability in improving analysts’ information production and should be of interest to firms, investors, and academics.

Authors

• Le Emily Xu, University of New Hampshire

• Kun Yu, University of Massachusetts Boston