Are Red or Blue Companies More Likely to Go Green? Politics and Corporate Social Responsibility
Alberta Di Giuli
ESCP Europe - Department of Finance
University of Rochester – Simon Business School
August 20, 2012
We examine whether the political leanings of a firm’s stakeholders affect its behavior in terms of corporate social responsibility (CSR). Using firm-level CSR ratings from Kinder, Lydenberg, Domini (KLD), we find that firms score higher on CSR when they have Democratic rather than Republican founders, CEOs, and directors, and when they are headquartered in Democratic rather than Republican-leaning states. We estimate that CSR costs Democratic-leaning firms approximately $20 million more in annual SG&A expenses than Republican-leaning firms ($80 million more within the sample of S&P500 firms), representing about 10% of net income. We also show that changes in firm CSR policies (KLD “strengths”) are negatively associated with future stock returns, changes in institutional ownership, and changes in ROA, suggesting some loss of firm financial value in exchange for any direct value benefits to stakeholders from social responsibility.
Number of Pages in PDF File: 60
Keywords: Corporate social responsibility (CSR), Corporate culture, Political values
JEL Classification: M14, G3, L2, L21, D21
Date posted: March 17, 2011 ; Last revised: August 19, 2013
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