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Are Red or Blue Companies More Likely to Go Green? Politics and Corporate Social Responsibility

60 Pages Posted: 17 Mar 2011 Last revised: 19 Aug 2013

Alberta Di Giuli

ESCP Europe - Department of Finance

Leonard Kostovetsky

Carroll School of Management, Boston College

Multiple version iconThere are 2 versions of this paper

Date Written: August 20, 2012

Abstract

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.

Keywords: Corporate social responsibility (CSR), Corporate culture, Political values

JEL Classification: M14, G3, L2, L21, D21

Suggested Citation

Di Giuli, Alberta and Kostovetsky, Leonard, Are Red or Blue Companies More Likely to Go Green? Politics and Corporate Social Responsibility (August 20, 2012). Available at SSRN: https://ssrn.com/abstract=1785562 or http://dx.doi.org/10.2139/ssrn.1785562

Alberta Di Giuli (Contact Author)

ESCP Europe - Department of Finance ( email )

Paris Campus
79, Avenue de la Republique
Paris, 75543
France

Leonard Kostovetsky

Carroll School of Management, Boston College ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States

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