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A Modigliani-Miller Theory of Altruistic Corporate Social Responsibility

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  • Graff Zivin Joshua

    ()
    (Columbia University)

  • Small Arthur

    ()
    (Columbia University)

Abstract

A new theory of altruistic corporate social responsibility is developed. Firms that advertise their social and environmental good works in effect solicit charitable contributions from customers, employees, investors and other stakeholders. They compete with not-for-profits in the market to supply public and altruistic goods. To analyze how corporate altruism affects firm valuations, a model is developed in which investors gain utility both from personal consumption and from making donations to worthy causes. A share in a “responsible" firm is a charity-investment bundle. When individuals view corporations and not-for-profits as equally competent suppliers of charity-related “warm glow," small changes in firms' social policies induce exactly offsetting changes in individuals' portfolio choices. There is no effect on firm valuations, and no change in the aggregate supply of good works. When a sizable fraction of investors prefer corporate philanthropy over direct charitable giving (e.g., to avoid taxation of corporate profits), firm valuations will be maximized by following social policies that involve strictly positive levels of corporate altruism.

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Bibliographic Info

Article provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.

Volume (Year): 5 (2005)
Issue (Month): 1 (May)
Pages: 1-21

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Handle: RePEc:bpj:bejeap:v:topics.5:y:2005:i:1:n:10

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Cited by:
  1. Forest L. Reinhardt & Robert N. Stavins & Richard H. K. Vietor, 2008. "Corporate Social Responsibility Through an Economic Lens," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 2(2), pages 219-239, Summer.
  2. Thomas P. Lyon & John W. Maxwell, 2008. "Corporate Social Responsibility and the Environment: A Theoretical Perspective," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 2(2), pages 240-260, Summer.
  3. Hediger, Werner, 2008. "Agriculture’s Multifunctionality, Sustainability, and Social Responsibility," 82nd Annual Conference, March 31 - April 2, 2008, Royal Agricultural College, Cirencester, UK 36854, Agricultural Economics Society.
  4. Baron, David P., 2006. "Managerial Contracting and Corporate Social Responsibility," Research Papers 1945, Stanford University, Graduate School of Business.
  5. Baron, David P. & Harjoto, Maretno A. & Jo, Hoje, 2009. "The Economics and Politics of Corporate Social Performance," Research Papers 1993r, Stanford University, Graduate School of Business.
  6. Tjai Nielsen & Liesl Riddle, 2009. "Investing in Peace: The Motivational Dynamics of Diaspora Investment in Post-Conflict Economies," Journal of Business Ethics, Springer, vol. 89(4), pages 435-448, March.
  7. Baron, David P. & Harjoto, Maretno A. & Jo, Hoje, 2008. "The Economics and Politics of Corporate Social Performance," Research Papers 1993, Stanford University, Graduate School of Business.
  8. Lynes, Jennifer K. & Andrachuk, Mark, 2008. "Motivations for corporate social and environmental responsibility: A case study of Scandinavian Airlines," Journal of International Management, Elsevier, vol. 14(4), pages 377-390, December.
  9. Nagano, Mamoru, 2010. "Islamic Finance and the Theory of Capital Structure," MPRA Paper 24567, University Library of Munich, Germany.
  10. Klaas van 't Veld & Matthew J. Kotchen, 2010. "Green Clubs," NBER Working Papers 16627, National Bureau of Economic Research, Inc.
  11. Rekker, Saphira A.C. & Benson, Karen L. & Faff, Robert W., 2014. "Corporate social responsibility and CEO compensation revisited: Do disaggregation, market stress, gender matter?," Journal of Economics and Business, Elsevier, vol. 72(C), pages 84-103.
  12. Douglas Cumming & Sofia Johan, 2007. "Socially Responsible Institutional Investment in Private Equity," Journal of Business Ethics, Springer, vol. 75(4), pages 395-416, November.
  13. Hélène Pasquini-Descomps & Jean-Michel Sahut, 2014. "ESG Impact on Market Performance of Firms: International Evidence," Working Papers 2014-212, Department of Research, Ipag Business School.

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