Do Analysts Matter for Corporate Social Responsibility? Evidence from Natural Experiments

We examine the causal impact of financial analysts on firms’ socially responsible activities. Relying on brokerage closures and mergers as natural experiments which generate exogenous changes in analyst coverage, our Difference-in-Differences estimator indicates that a reduction in analyst coverage causes firms to engage more aggressively in irresponsible behavior, especially in the dimensions of environmental issues and product quality and safety concerns. The effects of analyst coverage on irresponsible activities are more pronounced in firms with lower initial analyst coverage, weaker corporate governance and higher financial constraints. Our paper identifies the deterrent effect of financial analysts as an important determinant in firms’ CSR choice, and sheds light on the impact of financial analysts on non-financial stakeholders. JEL Classification: G34, G24, M14