Financial Constraints on Corporate Goodness

Harrison Hong, Jeffrey D. Kubik and Jose Scheinkman

No 18476, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: G30 G32 G39 (search for similar items in EconPapers)
Date: 2012-10
Note: CF
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (157)

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