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The Economics and Politics of Corporate Social Performance

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Author Info
Baron, David P. (Stanford U)
Harjoto, Maretno A. (Pepperdine U)
Jo, Hoje (Santa Clara U)
Abstract

This paper provides an empirical test of a theory that relates corporate financial performance (CFP), corporate social performance (CSP), and social pressure from government and social activist for improved social performance. A three-equation structural model is estimated for a large number of firms for 1996-2004. The estimates are statistically and economically significant and consistent with the theory. CFP as measured by Tobin’s q is increasing in CSP, indicating that it is rewarded by consumers, employees, or investors, and decreasing in social pressure. CSP is increasing in social pressure, indicating that social performance is responsive to social pressure which mitigates some of the negative effect of social pressure on CFP. CSP is also increasing in CFP, which is consistent with social performance being a perquisite for management. Social pressure is decreasing in CFP and increasing in CSP, which is consistent with social pressure being directed to soft targets that are likely to be responsive. The measures of CSP and social pressure are also disaggregated, and the relations among CFP, CSP, and social pressure are largely due to responsive CSP and social pressure arising from private politics.

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Paper provided by Stanford University, Graduate School of Business in its series Research Papers with number 1993.

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Date of creation: Jul 2008
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Handle: RePEc:ecl:stabus:1993

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  7. Giovanni Cespa & Giacinta Cestone, 2007. "Corporate Social Responsibility and Managerial Entrenchment," CSEF Working Papers 173, Centre for Studies in Economics and Finance (CSEF), University of Salerno, Italy. [Downloadable!]
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  8. David P. Baron, 2007. "Corporate Social Responsibility and Social Entrepreneurship," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 16(3), pages 683-717, 09. [Downloadable!] (restricted)
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  12. Fama, Eugene F. & French, Kenneth R., 1997. "Industry costs of equity," Journal of Financial Economics, Elsevier, vol. 43(2), pages 153-193, February. [Downloadable!] (restricted)
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  19. Binder, Seth & Neumayer, Eric, 2005. "Environmental pressure group strength and air pollution: An empirical analysis," Ecological Economics, Elsevier, vol. 55(4), pages 527-538, December. [Downloadable!] (restricted)
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