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The Economics and Politics of Corporate Social Performance

  • Baron, David P.

    (Stanford U)

  • Harjoto, Maretno A.

    (Pepperdine U)

  • Jo, Hoje

    (Santa Clara U)

Registered author(s):

    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
    Date of revision:
    Handle: RePEc:ecl:stabus:1993
    Contact details of provider: Postal: Stanford University, Stanford, CA 94305-5015
    Phone: (650) 723-2146
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