Firm’s Economic Reliance to National Markets and the Corporate Provision of Public Goods

54 Pages Posted: 30 Mar 2015 Last revised: 16 Feb 2019

Date Written: December 13, 2016

Abstract

When firms decide to engage in the provision of collective goods that benefit social welfare (i.e., to behave prosocially), they may consider the economic relevance of such goods for their own market operation. The bigger the stake of the firm in a given market, the greater its reliance on the market’s collective goods (e.g., communication networks, transportation infrastructure). Therefore, a market’s relative importance for a firm should be a significant predictor of corporate pro-social behavior—an association that is not explained by theories on social preferences or strategic considerations. I test this argument by constructing a measure of corporate economic reliance on market systems based on the literature on club goods and analyzing data on corporations’ philanthropic responses to 3,115 natural disasters between 2003 and 2013, inclusive. I show that accounting for variation in economic reliance leads to a more accurate prediction of the frequency and magnitude of corporate pro-social behavior than widely invoked arguments rooted in the strategic philanthropy and institutional literatures, which neglect such firm-market connection.

Keywords: corporate giving to disasters, club goods, pro-social behavior, disaster relief, corporate social responsibility, natural experiments

JEL Classification: D71, D81, D23, C33, C51, O17, M14

Suggested Citation

Ballesteros, Luis, Firm’s Economic Reliance to National Markets and the Corporate Provision of Public Goods (December 13, 2016). The Wharton School Research Paper No. 80, Available at SSRN: https://ssrn.com/abstract=2586580 or http://dx.doi.org/10.2139/ssrn.2586580

Luis Ballesteros (Contact Author)

George Washington University ( email )

Funger Hall, Suite 402
2201 G Street, N.W.
Washington, DC 20052
United States

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