Valentina L. Zamora

CSR Disclosure Items Used as Fairness Heuristics in the Investment Decision

The growth in demand for corporate social responsibility (CSR) information raises the question of how various CSR disclosure items are used by investors, an important stakeholder group driven by instrumental, moral, and relational motives. Prior research examines the instrumental motive to maximize individual shareholder wealth and the moral motive to actualize personal stewardship interests. We contribute to the literature by examining investors’ relational motive to realize positive stakeholder relationships within and between organizations and communities. The relational motive arises when investors look at a company’s treatment of other stakeholder groups as a heuristic to form a perception of how fairly they will also be treated by that company in the future, and thus invest in the company they perceive as fair. Fair treatment in the future matters to the investor who purchases stock from the company or via the capital markets in exchange for becoming a shareholder and thus a residual claimant of the company. As such, the investor expects future cash flows from holding and/or reselling the stock and expects to be treated fairly by the company in the future. We propose that investors, use as a fairness heuristic, CSR disclosure items – CSR investment level or CSR assurance – that represent the company’s commitment to its stakeholders, and that the resulting fairness perception affects the extent to which the CSR disclosure items influence their investment decision. Using responses from 113 investors in an online experiment, we find that fairness perceptions are higher when CSR investment is above (versus below) the industry average, and that fairness perceptions partially mediate the impact of the CSR investment level on investment amount allocations. We do not find that the presence (versus absence) of CSR assurance is used by investors as a fairness heuristic. Our results are robust to controlling for preferences for financial performance and hence investors’ instrumental motive, and to controlling for individual environmental attitudes, and hence investors’ moral motive. Implications for future research and public policy are discussed.

Do Managers Benefit from Superior Forecasting

I examine whether superior managerial talent signaled through earnings forecast accuracy is associated with higher compensation and career prospects. In the spirit of Trueman’s [1986] model, I expect that managers with superior forecast accuracy enjoy higher compensation and career prospects not as a result of their forecasting behavior per se, but rather because their observable forecasting behavior signals their unobservable managerial talent. Using a sample of CFOs in the S&P1500 providing management forecasts of annual and quarterly EPS over the period 1998-2006, I find that CFOs classified as superior forecasters receive higher bonus and equity pay, are more likely to advance their career, and enjoy higher salaries and initial equity grants in the subsequent year.