Political corruption and Corporate Social Responsibility (CSR)

Abstract

In this study we investigate the relationship between political corruption and corporate social responsibility (CSR) strengths. We provide evidence that firms situated in U.S. states with higher levels of corruption exhibit poorer CSR strengths. Our results survive an array of robustness and endogeneity tests. We identify a positive (negative) effect on a firm’s CSR reporting or disclosure practices (the rater’s assessment of the firm’s CSR activities and policies) after state-level exogenous shocks from political scandal revelations for firms headquartered in the scandal states. We show that firms with higher political connections obtained through campaign contributions rely less on CSR strengths for a given level of corruption. Additionally, we find that the influence of corruption on CSR is larger than that of other traditional external societal norms, namely, social capital and religiosity.