Standing out from the Crowd via Corporate Goodness: Evidence from a Natural Experiment

The Harvard Law School Forum on Corporate Governance and Financial Regulation 2017-03-24

Posted by Julie Wu, University of Nebraska, on Tuesday, March 21, 2017
Editor's Note: Juan (Julie) Wu is Assistant Professor of Finance at the University of Nebraska at Lincoln College of Business Administration. This post is based on a recent paper by Professor Wu; Lei Gao, Assistant Professor of Finance at Iowa State University College of Business; and Jie (Jack) He, Associate Professor at the University of Georgia Terry College of Business.

The past few decades have witnessed increasing awareness of corporate social responsibility (CSR) activities. These corporate goodness activities, where firms commit to giving simultaneous attention to the legitimate interests of all stakeholders, include (but are not exclusive to) employee relations, corporate philanthropy, and environment initiatives. Increases in corporate CSR engagement have generated ever-growing attention from academics of various disciplines, regulators, professional investors, and various other stakeholders. However, despite the continuous academic effort to better understand why firms engage in CSR, we still lack strong evidence on the motives of corporate goodness due to the endogeneity problem, a well-known methodological issue faced by most empirical studies. Our paper overcomes this challenge by using a natural experiment setting and sheds new light on why firms undertake CSR activities.