Economics, Pethokoukis

Study: Firms founded by Dems more likely to be ‘socially responsible’ — and less valuable

From  the study “Are Red or Blue Companies More Likely to go Green? Politics and Corporate Social Responsibility” (via the American Economic Association annual meeting):

We examine whether the political leanings of a firm’s stakeholders affect its behavior in terms of corporate social responsibility (CSR). Using firm-level CSR ratings from Kinder, Lydenberg, Domini (KLD), we find that firms score higher on CSR when they have Democratic rather than Republican founders, CEOs, and directors, and when they are headquartered in Democratic rather than Republican-leaning states.

We estimate that CSR costs Democratic-leaning firms approximately $20 million more in annual SG&A expenses than Republican-leaning firms ($80 million more within the sample of S&P500 firms), representing about 10% of net income.

We also show that changes in firm CSR policies (KLD “strengths”) are negatively associated with future stock returns, changes in institutional ownership, and changes in ROA, suggesting some loss of firm financial value in exchange for any direct value benefits to stakeholders from social responsibility.


2 thoughts on “Study: Firms founded by Dems more likely to be ‘socially responsible’ — and less valuable

  1. Wow. Academics who are fuzzy on the concept of cause and effect. Mutual fund analysts classify socially responsible funds as investors in large companies that — yes — can afford same-sex spousal benefits, green energy and the other KLD trappings. But large companies have different agendas than do smaller companies. It is hard to say that Google wasted money on its reputation after Justice sifted iffy antitrust data and gave it a pass.

    Industry sectors play a role. Commodities producers, including oil, rarely pass CSR environmental screens. Market segments are equally important. The study compares Wendys and Starbucks even though the high-margin coffee chain is much more vulnerable to consumer retrenchment, and more dependent on the good will of a discerning clientele. Yes, Starbucks has been on the wrong side of consumer trends lately. No, its corporate priorities are not the cause.

    Finally CSR is a murky concept at best. Range Resources, a leading shale gas company, will never make the CSR cut, but shale gas has cut US carbon emissions substantially, and Range is a good corporate citizen. We’ll ignore the difficulties of dividing companies into red and blue by campaign contributions and headquarters state. Royal blue Whole Foods, after all, is based in Texas.

    So what can we learn from comparing an arbitrary group with another arbitrary group without the slightest effort to control extraneous variables? I think we’ve learned something about AEI.

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