Doing Less Badly by Doing Good: Corporate Social Responsibility

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Doing Less Badly by Doing Good Corporate Social
Responsibility

• Amir Barnea, Robert Heinkel,
• Alan Kraus

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• Objectives
• Construct model of interactions between
  individual and corporate
• social giving.
• Use this model to
• Understand relative stock market returns of
  good and bad firms.
• Address tax policy questions re social
  contributions.

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• Model
• Expected end of period cash flow
• Neutral investor objective
• Altruistic investor objective

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• Altruistic investor utility for donations and CSR
  expenditures
• Entrepreneur objective

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• Model solution
• Equilibrium prices
• Equilibrium demands

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• Equilibrium CSR expenditures
• Equilibrium altruistic investor donations
• Note that Dj is independent of ti but DI
  depends on tc through Db and Dg.

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• General model results
• Firms investments Kb-Db and Kg-Dg are
  independent of Ia.
• At high levels of Ia, firms may make CSR
  expenditures Db and/or Dg past the cutoff for
  tax rebate.
• Stock prices Pb and Pg may be non-monotonic in
  Ia.
• For Iagt0, b firms stock has higher expected
  return than g firms stock.
• Altruistic individual donation DI is
  non-monotonic in Ia.

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Numerical example parameters
k16 ?200 ?10.1 wb1
k21 ui2 ?b0.6 wg -1
?b20 ub4 ?g0.6 tc0.4
?g20 ug3 ß6 tI0.3
?bg200 v2.5 ?0.5
Nb0.5 Ng0.5 Iblg0.5
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Equilibrium stock prices
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CSR expenditures
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Individual donations
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Numerical example tax policy results

• Social surplus decreases with the personal
  donation tax break (ti).
• Social surplus is non-monotonic and concave in
  the corporate CSR expenditure tax break (tc)
• The corporate tax break that maximizes social
  surplus (tc ) varies non-monotonically with the
  upper limit on deductible CSR expenditures (Ij).
• The maximum social surplus is weakly
  monotonically increasing and concave in the upper
  limit on deductible CSR expenditures (Ij).

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Social Surplus (Ia0.4)
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Social Surplus (Ia0.4)
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Optimal corporate tax break (Ia0.4)
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Maximum Social Surplus (Ia0.4, tctc )