Journal of Business Ethics

, Volume 128, Issue 1, pp 1–20 | Cite as

Legal vs. Normative CSR: Differential Impact on Analyst Dispersion, Stock Return Volatility, Cost of Capital, and Firm Value

  • Maretno A. Harjoto
  • Hoje Jo


This study examines how the sell-side analysts interpret firms’ corporate social responsibility (CSR) activities. Specifically, we examine the differential impact of overall, legal, and normative CSR on the analysts’ earnings forecast dispersion, stock return volatility, cost of equity capital, and firm value. Employing a sample of U.S. public firms during 1993–2009, we find that overall CSR intensities reduce analyst dispersion of earnings forecast, volatility of stock return and cost of capital (COC), and increase firm value. However, its impact is reduced for firms with better accounting and disclosure quality. When we disaggregate CSR into legal and normative CSR, we find that legal (normative) CSR decreases (increases) analysts’ dispersion, stock return volatility, and COC, while legal (normative) CSR increases (decreases) firm value. The sell-side analysts tend to have less (greater) information asymmetry regarding the net benefits of pursuing CSR that is (not) required by laws. We find, however, that the benefit of having normative CSR realized in 1 year lag such that analyst dispersion, stock return volatility, COC decrease, respectively, and firm value increases. Furthermore, we find that the benefit of normative CSR is offset for firms with higher accounting and disclosure quality.


Corporate social responsibility Legal CSR Normative CSR Analyst dispersion Cost of capital Firm value 



Hoje Jo appreciates Gerald and Bonita Wilkinson Professorship endowment, Leavey Research grant, and sabbatical support of the Leavey School of Business at Santa Clara University. We appreciate Gary Monroe, Section Editor, for insightful guidance and one anonymous referee for many constructive and valuable comments. Harjoto acknowledges the Julian Virtue Professorship endowment, and the Rothschild Fellowship awards for financial support.


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Copyright information

© Springer Science+Business Media Dordrecht 2014

Authors and Affiliations

  1. 1.Graziadio School of Business and ManagementPepperdine UniversityMalibuUSA
  2. 2.Santa Clara UniversitySanta ClaraUSA

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