Journal
MANAGEMENT SCIENCE
Volume 65, Issue 10, Pages 4451-4469Publisher
INFORMS
DOI: 10.1287/mnsc.2018.3043
Keywords
corporate social responsibility; product differentiation; systematic risk; beta; firm value; industry equilibrium
Funding
- European Union [PCOFUND-GA-2009-246542]
- Portuguese Foundation for Science and Technology-FCT [PTDC/IIM-FIN/2977/2014]
- Fundação para a Ciência e a Tecnologia [PTDC/IIM-FIN/2977/2014] Funding Source: FCT
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This paper presents an industry equilibrium model where firms have a choice to engage in corporate social responsibility (CSR) activities. We model CSR as an investment to increase product differentiation that allows firms to benefit from higher profit margins. The model predicts that CSR decreases systematic risk and increases firm value and that these effects are stronger for firms with high product differentiation. We find supporting evidence for our predictions. We address a potential endogeneity problem by instrumenting CSR using data on the political affiliation of the firm's home state.
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