The Economics and Politics of Corporate Social Performance
David P. Baron
Stanford University - Graduate School of Business
Maretno Agus Harjoto
Pepperdine University - Graziadio School of Business and Management
Santa Clara University
April 21, 2009
Stanford University Graduate School of Business Research Paper No. 1993
Rock Center for Corporate Governance at Stanford University Working Paper No. 45
This paper provides an empirical test of a theory that relates corporate financial performance (CFP), corporate social performance (CSP), and social pressure from government and social activist for improved social performance. A three-equation structural model is estimated for a large number of firms for 1996-2004. The estimates are statistically and economically significant and consistent with the theory. CFP as measured by Tobin's q is increasing in CSP, indicating that it is rewarded by consumers, employees, or investors, and decreasing in social pressure. CSP is increasing in social pressure, indicating that social performance is responsive to social pressure which mitigates some of the negative effect of social pressure on CFP. CSP is also increasing in CFP, which is consistent with social performance being a perquisite for management. Social pressure is decreasing in CFP and increasing in CSP, which is consistent with social pressure being directed to soft targets that are likely to be responsive. The measures of CSP and social pressure are also disaggregated, and the relations among CFP, CSP, and social pressure are largely due to responsive CSP and social pressure arising from private politics.
Number of Pages in PDF File: 56
Keywords: corporate social responsibility, economics and politics
JEL Classification: M14, L21working papers series
Date posted: August 6, 2008 ; Last revised: September 29, 2009
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