1 doing less badly by doing good: corporate social responsibility amir barnea, robert heinkel, alan...
TRANSCRIPT
1
Doing Less Badly by Doing Good: Corporate Social Responsibility
Amir Barnea, Robert Heinkel,
Alan Kraus
2
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.
3
Model
Expected end of period cash flow
Neutral investor objective
Altruistic investor objective
2
1 2
1,
2j j j j jk K D k K D j b g
2 2 2 212
2n nb b ng g nb b ng g nb ng bg
nb nb b ng ng g
U x x x x x x
x P x P
2 2 2 212
2
, , , , 1
a ab b ag g ab b ag g ab ag bg
ab ab b ag ag g
b g I ab ag i I
U x x x x x x
x P x P
W D D D x x t D
4
Altruistic investor utility for donations and CSR expenditures
Entrepreneur objective
2 2
2 2
1 1
2 2
1 1
2 2
where
i i I I b ab b b b b
g ag g g g g
a I b b g g
W u D vD x u D vD w
x u D vD w T T
T I D N D N D
Maximize P 1 ,j c j j j j jt D D K j b g
5
Model solution
Equilibrium prices
Equilibrium demands
2 2
2 2
1 1
2
1 1
2
ab b b b g bg b b b b b
B
ag g b bg g g g g g g g
G
IP N N u D vD w
I I
IP N N u D vD w
I I
* 2 * 2
* 2 * 2
2 2 2where and
gb a anb b g g bg ng g b b bg
gb n nab b g g bg ag g b b bg
b g bg n a
NN I Ix B G x G B
I I I I
NN I Ix B G x G B
I I I I
I I I
6
Equilibrium CSR expenditures
Equilibrium altruistic investor donations
Note that Dj* is independent of ti but DI
* depends on tc through Db and Dg.
*
2
1i i a a b b g g i
Ia
u I I N D N D tD
v I
* 11max 0, ,c j
j ja j
tID u j b g
v I
7
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 Ia>0, b firm’s stock has higher expected return than g firm’s stock.
• Altruistic individual donation DI* is non-monotonic in Ia.
8
Numerical example parameters
k1=6 =200 1=0.1 wb=1
k2=1 ui=2 b=0.6 wg= -1
b=20 ub=4 g=0.6 tc=0.4
g=20 ug=3 β=6 tI=0.3
bg=200 v=2.5 =0.5
Nb=0.5 Ng=0.5 Ib=lg=0.5
9
Equilibrium stock prices
15.6
15.8
16.0
16.2
16.4
16.6
16.8
17.0
17.2
17.4
17.6
17.8
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1
P g
P b
I a / I
10
CSR expenditures
0.0
0.2
0.4
0.6
0.8
1.0
1.2
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1I a / I
D b
D g
11
Individual donations
-1.00
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1
DI
I a / I
12
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).
13
Social Surplus (Ia=0.4)
0.00
0.50
1.00
1.50
2.00
2.50
3.00
0 0.1 0.2 0.3 0.4 0.5 0.6t i
C
SS
T
14
Social Surplus (Ia=0.4)
1.20
1.30
1.40
1.50
1.60
1.70
1.80
1.90
2.00
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1t c
SSl j =0.05
SSl j =0.025
SSlj=0.075
15
Optimal corporate tax break (Ia=0.4)
0.30
0.35
0.40
0.45
0.50
0.00 0.01 0.02 0.03 0.04 0.05 0.06 0.07 0.08 0.09 0.10l j
t c*
16
Maximum Social Surplus (Ia=0.4, tc=tc* )
1.680
1.700
1.720
1.740
1.760
1.780
1.800
1.820
0.00 0.01 0.02 0.03 0.04 0.05 0.06 0.07 0.08 0.09 0.10l j
SS *