Siegel and Vitaliano (2006)

Siegel, Donald S. and Donald F. Vitaliano. "An Empirical Analysis of the Strategic Use of Corporate Social Responsibility."  Working Paper, Rensselaer Polytechnic Institute, April 2006.

This interesting study explores the economic motivations for corporations to engage in socially responsible behavior, and finds that some companies have much stronger incentives to be socially responsible than others.

The study examines the question by comparing the social records of 696 U.S. companies with the types of products they sell. Of these firms, 495 were included in the KLD Large Cap Social Index (LCSI) as of 2002. This index is based on the Russell 1000, a broad-based U.S. index consisting primarily of large capitalization stocks.

Social responsibility is measured using three metrics, all based on KLD data: 1) a dummy variable denoting inclusion in or exclusion from the LCSI, 2) a summary variable computed by adding up all strength ratings in the KLD database and subtracting all concern ratings, and 3) a measure of "public" social responsibility, which is based only on the Community Relations, Diversity, Environment, and International Human Rights issue areas.

Each firm is then classified according to the types of goods it sells. Three types of product are considered:

1) Search Goods (6% of companies), which are "readily evaluated prior to purchase," such as clothing, footwear, and furniture.

2) Experience Goods, which "must be used or consumed before their true value to the consumer can be determined. Examples of experience goods and services are automobiles [and] appliances..." The authors further subclassify experience goods into 'durable' (26% of companies), 'non-durable' (11%), and 'experience services' (36%) categories.

3) Credence Services (21%), in which information is highly asymmetrical and the reputation of the provider is therefore paramount. Examples include auto repair, mutual funds, and health care.

Simple probit regressions are then estimated with the product types as the independent and the CSR metrics as the dependent variables. Control variables include sales, lagged profitability, and R&D intensity. This analysis strongly suggests that firms selling credence services and durable experience goods are more likely to have strong CSR characteristics. The authors believe this supports their contention that "CSR is a form of product differentiation--a form of advertising to establish or sustain brand loyalty."

Link:  https://papers.ssrn.com/sol3/papers.cfm?abstract_id=900521