Journal of Business Ethics

, Volume 148, Issue 1, pp 183–203 | Cite as

What Good Does Doing Good do? The Effect of Bond Rating Analysts’ Corporate Bias on Investor Reactions to Changes in Social Responsibility

  • Oana Branzei
  • Jeff Frooman
  • Brent McknightEmail author
  • Charlene Zietsma
Original Paper


In this study, we explore how investors reconcile information on firms’ social responsibility with analysts’ assessments of future firm risk in the pricing of long-term bonds. We ask whether investors pay attention to small strides toward and/or small slips away from socially responsible behavior, arguing that analysts’ corporate bias toward gains and against losses influences investor reactions to corporate social responsibility. We hypothesize that analysts notice and reward improvements in social responsibility, yet excuse lapses. We find support for this hypothesis, using a unique dataset of long-term bonds that combines lagged measures of firm-level financial and social performance with bond-specific data pertaining to risk of default and pricing. The empirically robust asymmetry in investor responses to small but often cumulative increases versus decreases in corporate social responsibility reveals an under-examined root cause of longer-term, larger-scale distortions in financial market returns regarding corporate social performance. Our findings elaborate earlier behavioral research on how corporate bias influences analysts’ short-term assessments of economic risk, by theorizing why this corporate bias may influence long-term assessments of social risk. Our work also motivates more critical scrutiny of the role analysts play in revising the future risk of today’s social action versus inaction.


Corporate social responsibility Corporate bias Long-term debt Long-term risk 


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Copyright information

© Springer Science+Business Media Dordrecht 2016

Authors and Affiliations

  • Oana Branzei
    • 1
  • Jeff Frooman
    • 2
  • Brent Mcknight
    • 3
    Email author
  • Charlene Zietsma
    • 4
  1. 1.Richard Ivey School of BusinessWestern UniversityLondonCanada
  2. 2.Faculty of Business AdministrationUniversity of New BrunswickFrederictonCanada
  3. 3.DeGroote School of BusinessMcMaster UniversityHamiltonCanada
  4. 4.Schulich School of BusinessYork UniversityTorontoCanada

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