Does Corporate Social Responsibility Lead to Superior Financial Performance? A Regression Discontinuity Approach

Abstract:     
This study examines the effect of corporate social responsibility (CSR) on financial performance. Specifically, we analyze the effect of CSR-related shareholder proposals that pass or fail by a small margin of votes. The passage of such "close-call" proposals is akin to a random assignment of CSR to companies and hence provides a clean causal estimate. Consistent with the view that CSR is a valuable resource, we find that adopting a CSR-related proposal leads to superior financial performance. The effect is weaker for companies with higher levels of CSR, suggesting that CSR is a resource with decreasing marginal returns. Finally, consistent with institutional theory, we find that the effect is stronger for companies operating in industries where institutional norms of CSR are higher.

Number of Pages in PDF File: 35

Keywords: Corporate Social Responsibility, Financial Performance, Regression Discontinuity

JEL Classification: M14, D24

working papers series