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What Purpose Do Corporations Purport? Evidence from Letters to Shareholders

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  • Rajan, Raghuram G.
  • Ramella, Pietro
  • Zingales, Luigi

Abstract

Using natural language processing, we identify and categorize the corporate goals in the shareholder letters of the 150 largest companies in the United States, from 1955 to 2020. Corporate goals have proliferated during this period from an average of two in 1955 to almost 10 in 2020. We find a variety of factors are associated with a corporation stating a specific goal including advertising a firm's strengths, promising improved performance, signaling a commitment to specific constituencies, building societal legitimacy, and conforming to the behavior of other corporations. In spite of the proliferation of corporate goals, executive compensation is still overwhelmingly based on shareholder value, as measured by stock prices and financial performance. Yet, we do observe a rise in bonus payments made contingent on social and environmental objectives, especially among the signatories of the 2019 Business Roundtable statement on corporate purpose.

Suggested Citation

  • Rajan, Raghuram G. & Ramella, Pietro & Zingales, Luigi, 2022. "What Purpose Do Corporations Purport? Evidence from Letters to Shareholders," Working Papers 314, The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State.
    • Handle: RePEc:zbw:cbscwp:314
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    1. Paul Gompers & Joy Ishii & Andrew Metrick, 2003. "Corporate Governance and Equity Prices," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(1), pages 107-156.
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    Cited by:

    1. Hart, Oliver D. & Zingales, Luigi, 2022. "The New Corporate Governance," Working Papers 317, The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State.
    2. Song, Fenghua & Thakor, Anjan & Quinn, Robert, 2023. "Purpose, profit and social pressure," Journal of Financial Intermediation, Elsevier, vol. 55(C).
    3. Sven Kunisch & Julian Birkinshaw & Michael Boppel & Kira Choi, 2023. "Why do firms launch corporate change programs?," Post-Print hal-04325790, HAL.
    4. Giannetti, Mariassunta & Jasova, Martina & Loumioti, Maria & Mendicino, Caterina, 2023. "“Glossy green” banks: the disconnect between environmental disclosures and lending activities," Working Paper Series 2882, European Central Bank.

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    More about this item

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm

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