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, I 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, I find that the adoption of CSR proposals leads to positive announcement returns and superior accounting performance. When I examine the channels through which companies benefit from CSR, I find that the adoption of CSR proposals is associated with an increase in labor productivity and sales growth. This evidence suggests that CSR improves employee satisfaction and helps companies cater to customers that are responsive to sustainable practices.

Keywords: corporate social responsibility; financial performance; regression discontinuity; shareholder proposals

JEL Classification: M14, D24