Does the Tone in Corporate Social Responsibility Reports Misdirect Analysts’ Forecasts in China?

With increasing emphasis being placed on corporate social responsibility, the number of companies furnishing corporate social responsibility (CSR) reports is increasing. This study investigates the impact of abnormal positive tone in CSR reports on analysts’ earnings forecast bias. The textual analysis of CSR reports of Chinese listed companies between 2006 and 2016 reveals that an abnormal positive tone significantly and positively relates to an optimistic bias in analysts’ forecasts. This effect is pronounced among companies with poor financial transparency and those operating in regions where culture is stakeholder-oriented. Further analysis confirms that the poorer the company’s CSR performance, the more it tends to mislead analysts using an abnormal positive tone in its CSR report. Based on these findings, this study suggests that firms may greenwash using an abnormally positive tone in their CSR reports.