Financial Constraints on Corporate Goodness / Harrison Hong, Jeffrey D. Kubik, Jose A. Scheinkman.

Format:

Book

Author/Creator:

Hong, Harrison.

Contributor:

National Bureau of Economic Research.

Kubik, Jeffrey D.

Scheinkman, Jose A.

Series:

Working Paper Series (National Bureau of Economic Research) no. w18476.

NBER working paper series no. w18476

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2012.

Summary:

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.

Notes:

Print version record

October 2012.