Review of Accounting Studies

, Volume 21, Issue 3, pp 740–767 | Cite as

Taste, information, and asset prices: implications for the valuation of CSR



Firms often undertake activities that do not necessarily increase cash flows (e.g., costly investments in corporate social responsibility or CSR), and some investors value these non cash activities (i.e., they have a “taste” for these activities). We develop a model to capture this phenomenon and focus on the asset-pricing implications of differences in investors’ tastes for firms’ activities and outputs. Our model shows that, first, investor taste differences provide a basis for investor clientele effects that are endogenously determined by the shares demanded by different types of investors. Second, because the market must clear at one price, investors’ demands are influenced by all dimensions of firm output even if their preferences are only over some dimensions. Third, information releases cause trading volume, even when all investors have the same information. Fourth, investor taste provides a rationale for corporate spin-offs that help firms better target their shareholder bases. Finally, individual social responsibility can lead to corporate social responsibility when managers care about stock price because price reacts to investments in CSR activities.


Asset pricing Taste Reporting Corporate social responsibility 


G11 G12 L30 M40 



We thank Stefan Wielenberg (discussant), Steven Huddart (discussant), Raffi Indjejikian (discussant), Russel Lundholm (editor), an anonymous referee, and Paul Fischer as well as workshop participants at UCLA, Wharton, Chicago (Booth), Carnegie Mellon, Minnesota, Utah, Ohio State, Maastricht, Tilburg, the Utah Winter Accounting Conference, the Zurich Accounting Research Workshop, and the Review of Accounting Studies Conference for helpful comments and suggestions.


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Copyright information

© Springer Science+Business Media New York 2016

Authors and Affiliations

  1. 1.University of CaliforniaLos AngelesUSA
  2. 2.University of PennsylvaniaPhiladelphiaUSA

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