What Good Does Doing Good do? The Effect of Bond Rating Analysts’ Corporate Bias on Investor Reactions to Changes in Social Responsibility

Branzei, O; Frooman, J; Mcknight, B; Zietsma, C

What Good Does Doing Good do? The Effect of Bond Rating Analysts’ Corporate Bias on Investor Reactions to Changes in Social Responsibility

Branzei, O Frooman, J Mcknight, B Zietsma, C

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Publication Type:: Journal Article
Citation:: Journal of Business Ethics, 2018, 148 (1), pp. 183 - 203
Issue Date:: 2018-03-01

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Field	Value	Language
dc.contributor.author	Branzei, O	en_US
dc.contributor.author	Frooman, J	en_US
dc.contributor.author	Mcknight, B	en_US
dc.contributor.author	Zietsma, C https://orcid.org/0000-0002-6439-3320	en_US
dc.date.issued	2018-03-01	en_US
dc.identifier.citation	Journal of Business Ethics, 2018, 148 (1), pp. 183 - 203	en_US
dc.identifier.issn	0167-4544	en_US
dc.identifier.uri	http://hdl.handle.net/10453/130551
dc.description.abstract	© 2016, Springer Science+Business Media Dordrecht. In this study, we explore how investors reconcile information on firms’ social responsibility with analysts’ assessments of future firm risk in the pricing of long-term bonds. We ask whether investors pay attention to small strides toward and/or small slips away from socially responsible behavior, arguing that analysts’ corporate bias toward gains and against losses influences investor reactions to corporate social responsibility. We hypothesize that analysts notice and reward improvements in social responsibility, yet excuse lapses. We find support for this hypothesis, using a unique dataset of long-term bonds that combines lagged measures of firm-level financial and social performance with bond-specific data pertaining to risk of default and pricing. The empirically robust asymmetry in investor responses to small but often cumulative increases versus decreases in corporate social responsibility reveals an under-examined root cause of longer-term, larger-scale distortions in financial market returns regarding corporate social performance. Our findings elaborate earlier behavioral research on how corporate bias influences analysts’ short-term assessments of economic risk, by theorizing why this corporate bias may influence long-term assessments of social risk. Our work also motivates more critical scrutiny of the role analysts play in revising the future risk of today’s social action versus inaction.	en_US
dc.relation.ispartof	Journal of Business Ethics	en_US
dc.relation.isbasedon	10.1007/s10551-016-3357-6	en_US
dc.subject.classification	Applied Ethics	en_US
dc.title	What Good Does Doing Good do? The Effect of Bond Rating Analysts’ Corporate Bias on Investor Reactions to Changes in Social Responsibility	en_US
dc.type	Journal Article
utslib.citation.volume	1	en_US
utslib.citation.volume	148	en_US
utslib.for	1503 Business and Management	en_US
utslib.for	2201 Applied Ethics	en_US
utslib.for	1505 Marketing	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
utslib.copyright.status	closed_access
pubs.issue	1	en_US
pubs.publication-status	Published	en_US
pubs.volume	148	en_US

Abstract:

© 2016, Springer Science+Business Media Dordrecht. In this study, we explore how investors reconcile information on firms’ social responsibility with analysts’ assessments of future firm risk in the pricing of long-term bonds. We ask whether investors pay attention to small strides toward and/or small slips away from socially responsible behavior, arguing that analysts’ corporate bias toward gains and against losses influences investor reactions to corporate social responsibility. We hypothesize that analysts notice and reward improvements in social responsibility, yet excuse lapses. We find support for this hypothesis, using a unique dataset of long-term bonds that combines lagged measures of firm-level financial and social performance with bond-specific data pertaining to risk of default and pricing. The empirically robust asymmetry in investor responses to small but often cumulative increases versus decreases in corporate social responsibility reveals an under-examined root cause of longer-term, larger-scale distortions in financial market returns regarding corporate social performance. Our findings elaborate earlier behavioral research on how corporate bias influences analysts’ short-term assessments of economic risk, by theorizing why this corporate bias may influence long-term assessments of social risk. Our work also motivates more critical scrutiny of the role analysts play in revising the future risk of today’s social action versus inaction.

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http://hdl.handle.net/10453/130551