Document Type

Article

Date

1-3-2011

Embargo Period

12-5-2011

Keywords

tbd

Disciplines

Economics

Description/Abstract

We model the firm's optimal choice of capital and goodness subject to financial constraints. Managers and shareholders derive benefits over profits and social responsibility. Goodness is costly and its marginal benefit is finite; as a result, less-constrained firms spend more on goodness. We verify that less-constrained firms do indeed have higher social responsibility scores. Our empirical analysis addresses identification issues that have long plagued the corporate social responsibility literature, establishing the causality of this relationship using a natural experiment. During the technology bubble, previously constrained firms experienced a temporary relaxation of their constraints and their goodness scores also temporarily increased relative to their previously unconstrained peers. This temporary convergence applies to all components of the goodness scores such as community and employee relations and environmental responsibility but not governance.

Additional Information

This manuscript is from the Social Science Research Network, for more information see http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1784357#193946

Source

Harvested from ssrn.com

Included in

Economics Commons

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