We analyze the effects of CSR disclosure on the accuracy of analysts’ share price targets. The accuracy of analysts’ price targets is value-relevant as it reduces firms’ capital costs.

We assess this relationship for S&P 500 firms from 2009 to 2014, applying panel regressions. We find that the accuracy of analysts’ share price targets – measured as analysts’ forecast errors – worsen if firms disclose more information on CSR performance – measured using Bloomberg’s ESG disclosure score. This effect is further reinforced for firms in so-called “dirty” industries.

We also find that the accuracy of analysts’ price targets increases if firms publish a separate CSR report and show good CSR performance.

Based on our findings and prior literature, we argue that

(1)   analysts have difficulties processing additionally disclosed information on CSR, as this information is not sufficiently standardized for analysts to derive the correct impact on the firm’s future value as well as share price target, and that

(2)   a firm’s management may arbitrarily report on CSR performance to increase the firm’s value.

We see further regulations on non-financial reporting similar to those on financial reporting as essential to change these situations.


By: Jan-Frederic Schulz, University of St. Gallen

See the fill SSRN article here