Corporate Social Responsibility and Firm Value: Recent Developments

We provide a synthesized introduction to recent findings in the link between corporate social responsibility and firm value. The focus is on how and why profit-maximizing firms engage in socially responsible actions, and how such activities can increase product demand and shareholder value. Recent studies in empirical evidences, theoretical models, and trends in practice are discussed. This chapter is not intended to be a comprehensive survey but rather an introduction to bring future research interest in this field. Empirical studies show evidences of a positive impact of corporate giving on indicators of firm value such as shareholder value and financial performance. Theoretical models provide mechanisms and economic foundations for the demand increase leading to profits in different market structures. Socially responsible actions can be induced by external activists for fear of boycotts. Investors may prefer to hold shares of responsible firms when corporate giving can substitute for personal giving. A public good may be produced jointly with a private good. Models of general industry equilibrium find that demand increases due to the public good may come from the endogenous market effect. Companies in industries with entry barriers make the top list of corporate giving. Using examples in the pharmaceutical, finance, and high-tech industries, we discuss how corporate social responsibility is conducted in practice.