Hostname: page-component-745bb68f8f-mzp66 Total loading time: 0 Render date: 2025-01-12T23:12:45.884Z Has data issue: false hasContentIssue false
  • English
  • Français

The Economics and Politics of Corporate Social Performance

Published online by Cambridge University Press:  20 January 2017

David P. Baron ,
Maretno Agus Harjoto  and
Hoje Jo
David P. Baron
Affiliation:
Stanford University
Maretno Agus Harjoto
Affiliation:
Pepperdine University
Hoje Jo
Affiliation:
Santa Clara University
Get access Rights & Permissions [Opens in a new window]

Abstract

Firms operate in a capital market, a product market, and a market for social pressure directed at them by social activists, NGOs, and governments. An equilibrium in these three markets yields a three-equation structural model that relates corporate financial performance (CFP), corporate social performance (CSP), and social pressure. This paper estimates the simultaneous equation model for a panel of over 1,600 firms and finds that CFP is uncorrelated with CSP and negatively correlated with social pressure. CSP is decreasing in CFP and increasing in social pressure. Social pressure is increasing in CSP and decreasing in CFP, which is consistent with social pressure being directed to soft targets. Disaggregating the panel indicates that CFP is positively correlated with CSP for firms in consumer markets and negatively correlated for industrial markets. For consumer markets, CSP is increasing in CFP, which is consistent with a perquisites hypothesis that managers spend on CSR when they can afford it. For industrial markets CSP is decreasing in CFP, which is consistent with a moral management hypothesis. For both consumer and industrial markets, CSP is responsive to social pressure.

Keywords

corporate social performancemarketspolitics
Type
Research Article
Information
Business and Politics , Volume 13 , Issue 2 , August 2011 , pp. 1 - 46
Copyright
Copyright © V.K. Aggarwal 2011 and published under exclusive license to Cambridge University Press 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Argenti, Paul A. 2004. “Collaborating with Activists: How Starbucks Works with NGOs.” California Management Review. 47: 91–114.Google Scholar
Arellano, Manuel and Bond, Stephen. 1991. “Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations.” Review of Economic Studies. 58: 277–297.Google Scholar
Bailey, Elizabeth E. and Moon, Jon J. 2008. “Board Committees and Integrated Strategy: How Firms Integrate Market and Non-market Strategies for Mitigation.” Working Paper, University of Pennsylvania.Google Scholar
Bagnoli, Mark and Watts, Susan G. 2003. “Selling to Socially Responsible Consumers: Competition and the Private Provision of Public Goods.” Journal of Economics and Management Strategy. 12: 419–445.Google Scholar
Baron, David P. 2001. “Private Politics, Corporate Social Responsibility, and Integrated Strategy,” Journal of Economics and Management Strategy. 10 (Spring): 7–45.Google Scholar
Baron, David P. 2003. “Private Politics.” Journal of Economics and Management Strategy. 21: 31–66.Google Scholar
Baron, David P. 2007. “Corporate Social Responsibility and Social Entrepreneurship.” Journal of Economics and Management Strategy. 16: 683–717.Google Scholar
Baron, David P. 2008. “Managerial Contracting and Corporate Social Responsibility.” Journal of Public Economics. 92: 268–288.Google Scholar
Baron, David P. 2009a. “A Positive Theory of Moral Management, Social Pressure, and Corporate Social Performance.” Journal of Economics and Management Strategy. 18: 7–43.Google Scholar
Baron, David P. 2009b. “Credence Standards and Social Pressure.” In Voluntary Programs: A Club Theory Perspective, Prakash, Aseem and Potoski, Matthew, eds. MIT Press, pp. 41–66.Google Scholar
Baron, David P. 2010. Business and Its Environment, 6th ed. Upper Saddle River, New Jersey: Pearson Prentice Hall.Google Scholar
Baron, David P. and Diermeier, Daniel. 2007. “Strategic Activism and Nonmarket Strategy.” Journal of Economics and Management Strategy. 16: 599–634.Google Scholar
Bebchuk, L. and Cohen, A. 2005. “The costs of entrenched boards.” Journal of Financial Economics. 78: 409–433.Google Scholar
Becchetti, Leonardo and Ciciretti, Rocco. 2011. “Stock Market Reaction to the Global Financial Crisis: Testing for the Lehman Brothers Event.” Working Paper, University of Roma Tor Vergato.Google Scholar
Besley, Timothy and Ghatak, Maitreeshh. 2007. “Retailing public goods: The economics of corporate social responsibility.” Journal of Public Economics. 91: 1645–1663.Google Scholar
Binder, Seth and Neumayer, Eric. 2005. “Environmental pressure group strength and air pollution: An empirical analysis.” Ecological Economics. 55: 527–538.CrossRefGoogle Scholar
Casadesus-Masanell, Ramon, Crooke, Michael, Reinhardt, Forest, and Vasishth, Vishal. 2009. “Households’ Willingness to Pay for “Green” Goods: Evidence from Patagonia's Introduction of Organic Cotton Sportswear.” Journal of Economics and Management Strategy. 18: 203–233.Google Scholar
Cespa, Giovanni and Cestone, Giancinta. 2007. “Corporate Social Responsibility and Managerial Entrenchment.” Journal of Economics and Management Strategy. 16: 741–771.Google Scholar
Chatterji, Aaron K., Levine, David I., and Toffel, Michael W. 2009. “How Well Do Social Ratings Actually Measure Corporate Social Responsibility?” Journal of Economics and Management Strategy. 18: 125–169.Google Scholar
Chung, Kee H., and Pruitt, Stephen W. 1994. “A Simple Approximation of Tobin's q.” Financial Management (Autumn). 23: 70–74.Google Scholar
Dowell, G., Hart, S. and Yeung, B. 2000. “Do Corporate Global Environmental Standards Create or Destroy Market Value?” Management Science. 46: 1059–1074.Google Scholar
Elfenbein, Daniel W. and McManus, Brian. 2010. “A Greater Price for a Greater Good? Evidence that Consumers Pay More for Charity-Linked Products.” American Economic Journal: Economic Policy. 2: 28–60.Google Scholar
Epstein, Marc J. and Schnietz, Karen E. 2002. “Measuring the Cost of Environmental and Labor Protests to Globalization: An Event Study of the Failed 1999 Seattle WTO Talks.” International Trade Journal. 41: 129–160.Google Scholar
Fama, Eugene F. and French, Kenneth R. 1997. “Industry Costs of Equity.” Journal of Financial Economics. 43: 153–197.Google Scholar
Feddersen, Timothy J. and Gilligan, Thomas W. 2001. “Saints and Markets: Activists and the Supply of Credence Goods.” Journal of Economics and Management Strategy. 10: 149–171.Google Scholar
Fernández-Kranz, Daniel and Santaló, Juan. 2010. “When Necessity Becomes a Virtue: The Effect of Product Market Competition on Corporate Social Responsibility.” Journal of Economics and Management Strategy. 19: 453–487.Google Scholar
Fisman, Ray, Heal, Geoffrey, Nair, and Vinay B. 2008. “A Model of Corporate Philanthropy.” Working Paper, Columbia University.Google Scholar
Gompers, Paul, Ishii, Joy, and Metrick, A. 2003. “Corporate governance and equity prices.” Quarterly Journal of Economics. 118: 107–155.CrossRefGoogle Scholar
Gompers, Paul, Ishii, Joy, and Metrick, A. 2010. “Extreme governance: an analysis of dual-class firms in United States.” Review of Financial Studies 23 (3): 1051–1088.Google Scholar
Graff Zivin, Joshua and Small, Arthur. 2005. “A Modigliani-Miller Theory of Altruistic Corporate Social Responsibility.” Topics in Economic Analysis & Policy. 5: Article 10.Google Scholar
Greene, William H. 2008. Econometric Analysis, 6th ed. Upper Saddle River, NJ: Pearson Prentice Hall.Google Scholar
Hamilton, James T. 1993. “Politics and Social Costs: Estimating the Impact of Collective Action on Hazardous Waste Facilities.” RAND Journal of Economics. 24: 101–125.Google Scholar
Harjoto, Maretno A. and Jo, Hoje. 2011. “Corporate Governance and CSR Nexus.” Journal of Business Ethics. 100: 45–67.Google Scholar
Heinkle, Robert, Kraus, Alan, and Zechner, Josef. 2001. “The Effect of Green Investment on Corporate Behavior.” Journal of Financial and Quantitative Analysis. 36: 431–449.CrossRefGoogle Scholar
Hillman, Amy. J. and Keim, Gerald D. 2001. “Shareholder Value, Stakeholder Management, and Social Issues: What's the Bottom Line.” Strategic Management Journal. 22: 125–139.Google Scholar
Hiscox, Michael J. and Smyth, Nicholas F.B. 2006. “Is There Consumer Demand for Improved Labor Standards? Evidence from Field Experiments in Social Product Labeling.” Working Paper, Harvard University.Google Scholar
Ingram, Paul, Yue, Lori Qingyuan, and Rao, Hayagreeva. 2010. “Trouble in Store: Probes, Protests, and Store Openings by Wal-Mart 1998-2007.” American Journal of Sociology. 116: 53–92.Google Scholar
Jo, Hoje and Harjoto, Maretno A. 2011a. “Corporate Governance and Firm Value: The Impact of Corporate Social Responsibility.” Journal of Business Ethics (in press).Google Scholar
Jo, Hoje and Harjoto, Maretno A. 2011b. “The Causal Effect of Corporate Governance on CSR.” Forthcoming at Journal of Business Ethics.Google Scholar
King, Andrew A. and Lewis, Michael J. 2001. “Does It Pay to Be Green?” Journal of Industrial Ecology. 5: 105–116.Google Scholar
King, Brayden G. and Soule, Sarah A. 2007. “Social Movements as Extra-institutional Entrepreneurs: The Effect of Protests on Stock Price Returns” Administrative Science Quarterly. 52: 413–442.Google Scholar
Kinder, Lydenberg, Domini Research & Analytics. 2003. “KLD Ratings Data: Inclusive Social Rating Criteria.”Google Scholar
Kotchen, Matthew J. and Moon, Jon Jungbien. 2008. “Corporate Social Responsibility for Irresponsibility.” Working Paper, University of California-Santa Barbara.Google Scholar
Mahon, John F., and Griffin, Jennifer J. 1999. “Painting a Portrait.” Business & Society, 38 (March), 126–133.CrossRefGoogle Scholar
Margolis, Joshua D. and Walsh, James P. 2003. “Misery Loves Companies: Rethinking Social Initiatives by Business.” Administrative Sciences Quarterly. 48: 268–305.Google Scholar
Maxwell, John W., Lyon, Thomas P., and Hackett, Steven C. 2000. “Self-Regulation and Social Welfare: The Political Economy of Corporate Environmentalism.” Journal of Law and Economics. 43: 583–618.Google Scholar
McConnell, John J., and Servaes, Henri. 1990. “Additional Evidence on Equity Ownership and Corporate Value.” Journal of Financial Economics. 27: 595–612.Google Scholar
McGuire, Jean B., Sundgren, Alison, and Schneeweis, Thomas. 1988. “Corporate Social Responsibility and Firm Financial Performance.” Academy of Management Journal. 31: 854–872.Google Scholar
Milyo, Jeffrey, Primo, David, and Groseclose, Timothy. 2000. “Corporate PAC Campaign Contributions in Perspective.” Business and Politics, 2: 75–88.Google Scholar
Moon, Jon Jungbien. 2007. “In Good Companies? A Critical Evaluation of the Corporate Social Performance-Corporate Financial Performance Link.” Working Paper, University of Pennsylvania.Google Scholar
Morck, Randall, Shleifer, Andrei, Vishny, and Robert W. 1988. “Management Ownership and Market Valuation.” Journal of Financial Economics. 20: 293–315.Google Scholar
Navarro, Peter. 1988. “Why Do Corporations Give to Charity?” Journal of Business. 61: 65–93.Google Scholar
Orlinsky, Marc, Schmidt, Frank L., and Rynes, Sara L. 2003. “Corporate Social and Financial Performance: A Meta-analysis.” Organizational Studies. 24: 403–411.Google Scholar
Roman, Ronald M., Hayibor, Sefa, Agle, and Bradley R. 1999. “The Relationship Between Social and Financial Performance: Repainting a Portrait.” Business & Society, 38: 109–125.Google Scholar
Siegel, Donald S. and Vitaliano, Donald F. 2007. “An Empirical Analysis of the Strategic Use of Corporate Social Responsibility.” Journal of Economics & Management Strategy. 16: 773–792.Google Scholar
Tirole, Jean. 2001. “Corporate Governance.” Econometrica. 69: 1–35.Google Scholar
Vogel, David. 2005. The Market for Virtue: The Potential and Limits of Corporate Social Responsibility. Washington, DC: Brookings Institute.Google Scholar
Waddock, Sandra A. and Graves, Samual B. 1997. “The Corporate Social Performance-Financial Performance Link.” Strategic Management Journal. 18: 303–319.Google Scholar
Yermack, David. 2009. “‘Deducto’ ad absurdum: CEOs donating their own stock to their own family foundations.” Journal of Financial Economics. 94: 107–123.Google Scholar