Giving for Profit or Giving to Give: The Profitability of Corporate Social Responsibility

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Event Type: 
Brown Bag
Date and Time: 
Thursday, October 18, 2018
12:00 pm – 1:00 pm
Michele Fioretti

Do firms profit from socially responsible behaviors? Measuring the impact of social responsibility on profits is challenging because engaging in social responsible programs may be endogenous to other decisions regarding a firm's profitability. I overcome these issues by analyzing the demand and supply of social responsibility programs for the case of a fast-growing for-profit company offering charity auctions of celebrities' belongings. I show both reduced form evidence as well as results from a structural model of auctions with externalities indicating that giving increases bidders' willingness to pay. However, this increase does not compensate for the amount donated, making non-charity auctions preferable. To understand why the firm donates, I provide both theoretical and empirical evidence showing that the cost of procuring the items decrease in the percentage donated as celebrities favor larger donations as a form of cheap ads. As a result, donating is optimal for the firm. Yet, the firm donates 55% more than what is optimal, leading to less profits by a factor of four. The paper concludes that the firm is maximizing a combination of profit and social impact. This result provides empirical evidence that the objective of firms could extend beyond mere profit maximization.