existence of “measurement errors” (e.g. Waddock and Graves, 1997) or overall “flawed empirical analysis” (McWilliams and Siegel, 2000). Going a step further, Margolis and Walsh (2003) have even highlighted the futility of the quest for a general relation between CSR and CFP. While both the theoretical and empirical debates are still ongoing6 (Margolis, Elfenbein and Walsh, 2007), it is evident that the issue of whether CSR strategies result in value creation is by no means decided. With our work, we contribute to the resolution of this issue by paying attention to the channels and mechanisms via which critical information around socially responsible behaviors flows from firms to public equity markets. We ask therefore, how do external institutions that monitor and channel the flow of CSR information towards the capital markets perceive and assess, if at all, the value that is potentially created via socially responsible firm strategies? What particular conditions could affect the perceptions of potential value creation by the analysts and thus, affect their recommendations? Thus, we specifically seek to understand how social performance ratings impact sell-side securities analysts’ recommendations in the United States. In other words, we focus on a specific mechanism via which CSR information flows from firms towards capital markets and we investigate the potential perception of value creation (or destruction) on information intermediaries. We subsequently characterize conditions both at the firm, as well as the analyst level, that could potentially affect the perception of such value creation (or destruction). We built on a large number of studies in the accounting and finance literature that documents a) the role of 6 An additional dimension of the debate is the timing of the social performance – financial performance link (Brammer and Millington, 2008). Whilst CSR strategies often require short-term costs, the benefits are usually realized across time (i.e. in the long-run), and are contingent upon the specific type of CSR strategy as well as the environmental context and external institutional factors such as financial institutions and analysts that follow the firm (i.e. stakeholder awareness).
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