Business and Society

The economics and politics of corporate social performance

August 23, 2009 | 1 min read

The authors David Baron (Stanford University), Maretno Harjoto (Pepperdine University) and Hoje Jo (Santa Clara University) draw a distinction between CSP and CSR, “where the latter involves a moral duty to undertake social activities. In contrast, CSP need not arise from moral responsibilities. CSP as considered here pertains to social activities that satisfy two conditions. First, the activities are beyond the law and regulation. Second, the activities involve the private provision of public goods or private redeistribution.”

The empirical portion of the study covers the 1996-2004 time period. It uses KLD data as the basis for estimating CSP performance (the KLD “strengths”) and social pressure (the KLD “concerns”). IRRC corporate governance data are used “to control for corporate governance characteristics and capital market monitoring.”

Corporate financial performance is measured using Tobin’s Q, using Fama & French’s 48 industry dummy variables as controls. An industry competitiveness index is also used as a control, as are a variety of financial characteristics (e.g., R&D intensity, debt ratio, etc.).

Finds that “for the full dataset, CFP and CSP are found to be largely unrelated,” but that “greater social pressure is associated with worse CFP, which could reflect the effects of pressure on firms’ reputations, brand equities, or productivity.” Also finds that consumer companies have a higher propensity to better CSP, while industrial companies are less likely to be strong social performers [this finding accords with the experience of practitioners in their construction of social indexes].

A breakdown between the first and second four years of the sample (which map to presidential administrations) finds a stronger relationship between CSP and CFP in the Bush era than in the Clinton era.

The authors further note that “the absence of an empirical relation between financial performance and social performance or the presence of a positive relation for consumer industries and a negative relation for industrial industries does not mean that there is no causal relation for an individual firm...the challenge for empirical research is to determine whether a causal relation exists, and this will have to be done at the level of individual firms.”

This paper won the 2009 Moskowitz Prize competition (awarded by the Center for Responsible Business at the Haas School of Business, in cooperation with the Social Investment Forum, the Moskowitz Prize promotes the concept, practice, and growth of socially responsible investing).


This article was previously published on, August 23, 2009.

This article may be reproduced according to our terms of use with attribution (and link, if online) to To be cited as: “The economics and politics of corporate social performance”, Lloyd Kurtz,, August 23, 2009.

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