Environmental and social transparency and investment efficiency: The mediating effect of analysts' monitoring

摘要

We evaluate how financial analysts' information environment mediates the influence of a firm's environmental and social transparency on its investment efficiency. We argue that via their information intermediary and monitoring capabilities, analysts both react to and act upon transparency in such a way as to affect a firm's investment efficiency. Consistent with prior research, investment efficiency represents a firm's increase in net tangible assets relative to its sales growth. Transparency is based upon comprehensive ratings constructed by Bloomberg. Analysts' information environment is proxied by earnings forecast errors and dispersion. Our sample comprises S&P 500 index firms over 2012-2018. Results show that environmental and social transparencies each positively relate to investment efficiency, with analysts' information environment partially mediating this relationship. Moreover, environmental and social transparencies each relate to smaller forecast errors as well as less forecast dispersion. Furthermore, enhanced analyst forecasts imply less firm-level investment inefficiency. These results suggest that greater environmental and social transparency enhances financial analysts' information environment and, thus, their information intermediary and monitoring capabilities. Consequently, firms are more likely to attain investment efficiency.