The Economics and Politics of Corporate Social Performance

56 Pages Posted: 6 Aug 2008 Last revised: 29 Sep 2009

See all articles by David P. Baron

David P. Baron

Stanford University - Graduate School of Business

Maretno A. Harjoto

Pepperdine University - Pepperdine Graziadio Business School (PGBS)

Hoje Jo

Santa Clara University

Date Written: April 21, 2009

Abstract

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.

Keywords: corporate social responsibility, economics and politics

JEL Classification: M14, L21

Suggested Citation

Baron, David P. and Harjoto, Maretno Agus and Jo, Hoje, The Economics and Politics of Corporate Social Performance (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. Available at SSRN: https://ssrn.com/abstract=1202390 or http://dx.doi.org/10.2139/ssrn.1202390

David P. Baron (Contact Author)

Stanford University - Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
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Maretno Agus Harjoto

Pepperdine University - Pepperdine Graziadio Business School (PGBS) ( email )

Drescher Campus Suite 344
24255 Pacific Coast Highway
Malibu, CA 90263
United States
(310) 506-8542 (Phone)
(310) 506-4126 (Fax)

HOME PAGE: http://scholar.google.com/citations?hl=en&user=9-PfQi0AAAAJ

Hoje Jo

Santa Clara University ( email )

Santa Clara, CA 95053
United States
408-224-8890 (Phone)
408-554-4029 (Fax)

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