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Business and Professional Ethics Journal

Volume 32, Issue 3/4, Fall 2013

Maretno A. Harjoto, Hoje Jo
Pages 221-258

Do Thinkers Lead Doers?
The Causal Relation between CSR and Reputation of Analysts and Brokerage Houses

This study examines whether reputable analysts and brokerage houses as thinker-driven middlemen led corporations (doers) to engage in CSR by investigating the causal relation between CSR and analysts and brokerage houses’ reputations. While theory of information asymmetry predicts that corporations with higher level of CSR tend to attract more reputable analysts and brokerage houses such that they can disseminate valuable information to outside investors, the social pressure theory expects corporations, which receive coverage from more reputable analysts and brokerage houses, tend to have higher CSR. Our findings suggest that CSR activities per se do not attract experienced analysts and reputable brokerage houses. Instead, we find that corporations which are covered by more experienced analysts and reputable brokerage houses tend to increase their CSR activities, indirectly supporting the social pressure hypothesis based on thinker-led-doer model. In addition, we find that corporations tend to have higher CSR strengths, lower CSR concerns, and increased CSR components of diversity and product when they are covered by more reputable analysts and brokerage houses. We interpret these findings are supportive of the social pressure hypothesis, rather than the information asymmetry hypothesis.

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