The Economics and Politics of Corporate Social Performance

Abstract

This paper estimates a three-equation structural model based on a theory that relates corporate financial performance (CFP), corporate social performance (CSP), and social pressure. CFP is found to be independent of CSP and decreasing in social pressure, and CSP is independent of CFP and increasing in social pressure. Social pressure is increasing in CSP and decreasing in CFP, which is consistent with social pressure being directed to soft targets. These relations were stronger during the first four years of the Bush administration than the last four year of the Clinton administration. Disaggregating the measure of social pressure indicate that the relations among CFP, CSP, and social pressure are due to private politics and not public politics. For consumer industries greater CSP is associated with better CFP, and the opposite is true for industrial industries.