Working Paper: NBER ID: w18476
Authors: Harrison Hong; Jeffrey D. Kubik; Jose A. Scheinkman
Abstract: An influential thesis, dubbed "Doing well by doing good," argues that corporate social responsibility is profitable. But heterogeneity in firm financial constraints can induce a spurious correlation between profits and goodness even if the motives for goodness are non-profit in nature. We use two identification strategies to show that financial constraints are indeed an important driver of corporate goodness. First, during the Internet bubble, previously constrained firms experienced a temporary relaxation of their constraints and their goodness temporarily increased relative to their previously unconstrained peers. Second, a constrained firm's sustainability score increases more with its idiosyncratic equity valuation and lower cost of capital than a less-constrained counterpart. In sum, firms are more likely to do good when they do well.
Keywords: No keywords provided
JEL Codes: G30; G32; G39
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Financial Constraints (D20) | Corporate Goodness (M14) |
| Internet Bubble (1996-2000) (E32) | Corporate Goodness (for Constrained Firms) (L21) |
| Financial Constraints (D20) | Sensitivity of Corporate Goodness (M14) |
| Financial Constraints (D20) | Corporate Goodness (lower for constrained firms) (D22) |