Corporate social responsibility intensity, management earnings forecast accuracy, and investor trust: Evidence from Japan

This study examines whether and how corporate social responsibility (CSR) intensity affects investment performance directly, as a signal of investor trust, and indirectly, by impacting management earnings forecasts accuracy. We find that investors benefit from high CSR firms as they avoid unexpected stock volatility while paying the cost of CSR by lowering returns. The results suggest that CSR intensity stabilizes stock returns for high CSR firms in the long run and moderates management disclosure bias in the short run. Our findings imply that CSR activities based on stakeholder relationships would help signal firm-level trust and restrain myopic investment in the capital market. Stakeholder engagement in order to build investor trust is not only essential for corporate sustainability and long-term success but also a key determinant in well-functioning capital markets with unstable public trust in business and finance.