A GET OUT OF JAIL FREE CARD

In the first couple of posts, we analyzed which types of companies engaged in CSR, and whether or not they should even bother doing so. However, there was an apparent shortage of information in regards to the exact benefits a company can expect from such a enacting policy (apart from CSR being a decent substitute for a marketing campaign). Furthermore, one can argue that the publication dates of the papers (the 1970s) might inhibit their applicability to our modern times. Fortunately, both of these issues will not be a problem this time- today, we will be analyzing a 2014 article, entitled “Crime, Punishment and the Halo Effect of Corporate Social Responsibility”.
From the very beginning, the authors (Harrison Hong and Inessa Liskovich, both from Princeton’s Department of Economics) clearly state that there are three reasons for why corporate social responsibility is considered valuable: “product quality signaling, delegated giving, and the halo effect.” However, they then proceed argue how difficult it is to pinpoint the exact impact each of these forces have on a typical consumer, since it is usually a combination of the three. Instead, they chose to focus their efforts on empirically analyzing the possible benefits the “halo effect” can offer firms. Basically, they measured the data they had on 217 cases, where the defendants were charged with violating the Foreign Corrupt Practices Act (FCPA). After several regressions, they discovered that firms with higher “social responsibility scores”, were sentenced to pay a $2.3 million fine or 44% less than the median.
These are, indeed, quite substantial findings- and a valid argument for firms to engage in CSR. Even though prosecutors are supposed to evaluate each individual case based on its own merits, the authors’ findings indicate that courts can be lenient towards the more charitable enterprises. I found this to be quite amusing- the fact that CSR has essentially been turned into a legal bribe. Although, it should be noted that the authors themselves admitted that they found no evidence proving that the contributions of their defendants were made with an impeding criminal trial on the horizon. Regardless, this is one point in favor of CRS!

Hong, Harrison, and Inessa Liskovich. Crime, punishment and the halo effect of corporate social responsibility. No. w21215. National Bureau of Economic Research, 2015.