CSR Report Readability: Does It Matter to Analyst Recommendations and Information Environment?

This study examines whether CSR report readability affects the ability of analyst recommendations to predict future returns as well as analysts’ information environment. The results indicate that easy-to-read CSR disclosure improves the return predictability of analyst recommendations. Furthermore, we show that the effect of CSR report readability on analysts’ information environment is driven entirely by reducing uncertainty, not by reducing information asymmetry among analysts, and this result is more pronounced for firms with relatively low CSR performance. Additionally, we demonstrate that one possible channel through which more readable CSR reports may enhance the return predictability of analyst recommendations is by aligning these recommendations with valuation estimates from the residual income model.