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Corporate equality and equity prices: Doing well while doing good?

  • Fu, Shihe
  • Shan, Liwei
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Two competing hypotheses, value enhancing and value discounting, state that implementing socially responsible corporate policies can have positive or negative effects on firm value. This paper tests how a specific type of social responsibility–corporate equality–affects firm value. Corporate equality is measured by the corporate equality index (CEI). This index quantifies how companies treat their gay, lesbian, bisexual, and transgender employees, consumers, and investors. Using a sample of CEI-rated, publicly traded firms in the U.S., we find that, between 2002 and 2006, firms with a higher degree of corporate equality have higher stock returns and higher market valuation (Q). We provide suggestive, causal evidence that corporate equality enhances firm value through better performance in product markets and labor markets: Firms with a higher degree of corporate equality also tend to have larger sales, higher profit margins, higher employee productivity, and attract more employees. These results are robust to the inclusion of unobserved firm-heterogeneities. Overall, our results support the value-enhancing effects of corporate social responsibility.

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File URL: http://mpra.ub.uni-muenchen.de/14235/1/MPRA_paper_14235.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 14235.

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Date of creation: 12 Mar 2009
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Handle: RePEc:pra:mprapa:14235
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  4. Dan Black & Gary Gates & Seth Sanders & Lowell Taylor, 1999. "Demographics of the Gay and Lesbian Population in the United States: Evidence from Available Systematic Data Sources," Center for Policy Research Working Papers 12, Center for Policy Research, Maxwell School, Syracuse University.
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  19. M. V. Lee Badgett, 1995. "The wage effects of sexual orientation discrimination," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 48(4), pages 726-739, July.
  20. Zakri Y. Bello, 2005. "Socially Responsible Investing And Portfolio Diversification," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 28(1), pages 41-57.
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