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

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Date and Time: 
Thursday, October 18, 2018
12:00 pm – 1:00 pm
Speaker: 
Michele Fioretti
USC
Abstract: 

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.