Abstract

http://ssrn.com/abstract=1734164
 
 

References (21)



 
 

Citations (15)



 


 



Financial Constraints on Corporate Goodness


Harrison G. Hong


Princeton University - Department of Economics; National Bureau of Economic Research (NBER)

Jeffrey D. Kubik


Syracuse University - Department of Economics

Jose A. Scheinkman


Columbia University; Princeton University - Department of Economics; National Bureau of Economic Research (NBER)

February 2, 2012


Abstract:     
An influential thesis, dubbed "Doing Well by Doing Good", argues that corporate social responsibility is profitable. We establish that, if anything, the reverse is true: firms do good only when they do well in the sense of having financial slack. We model a firm's optimal choices of capital and goodness subject to financial constraints. Less-constrained firms spend more on goodness. We verify that in the data less constrained firms indeed have higher goodness scores and establish causality by using a quasi-experiment. During the Internet bubble, previously constrained firms experienced a temporary relaxation of their constraints and their goodness also temporarily increased relative to their previously unconstrained peers. Goodness is also more sensitive to financial constraints than capital or R\&D spending.

Number of Pages in PDF File: 49

Keywords: Corporate Social Responsibility, Socially Responsible Investing, Financial Constraints, Financial Slack, Externalities, Public Goods

JEL Classification: G30, H40, L20

working papers series


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Date posted: January 4, 2011 ; Last revised: April 26, 2012

Suggested Citation

Hong, Harrison G. and Kubik, Jeffrey D. and Scheinkman, Jose A., Financial Constraints on Corporate Goodness (February 2, 2012). Available at SSRN: http://ssrn.com/abstract=1734164 or http://dx.doi.org/10.2139/ssrn.1734164

Contact Information

Harrison G. Hong (Contact Author)
Princeton University - Department of Economics ( email )
Princeton, NJ 08544-1021
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Jeffrey D. Kubik
Syracuse University - Department of Economics ( email )
426 Eggers Hall
Syracuse, NY 13244-1020
United States
315-443-9063 (Phone)
315-443-1081 (Fax)
Jose A. Scheinkman
Columbia University ( email )
420 W. 118th Street
New York, NY 10027
United States
HOME PAGE: http://www.princeton.edu/~joses
Princeton University - Department of Economics ( email )
26 Prospect Avenue
Princeton, NJ 08544
United States
609-258-4020 (Phone)
609-258-6419 (Fax)
HOME PAGE: http://www.princeton.edu/~joses

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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