Goodwill Hunting:

Using Corporate Social Responsibility as Insurance

Jessica S. Jeffers∗

January 12, 2015

Abstract

Current research in finance suggests that there is no tangible financial return to CSR in-
vestment, yet companies not only continue to spend on CSR, they actively publicize their CSR
activities. In this paper I explore the possibility that CSR can act as insurance. The mech-
anism I propose is that CSR generates goodwill in the environment in which a firm operates,
which can later be redeemed for a lower penalty in case of an accident or for a preference
in awards. Using Occupational Safety and Health Administration penalties and government
contract awards, I show that officials are both more lenient with penalties and more generous
with awards for firms that are perceived as good corporate citizens. To control for potential
omitted variables, I use state constituency laws to instrument for CSR. I also provide evidence
that this effect operates through a perception channel.

∗
Wharton School of Business, jeffersj@wharton.upenn.edu.

Electronic copy available at: http://ssrn.com/abstract=2547994

 1 Introduction
At least ninety-five percent of the 250 largest companies in the world report engaging in some
form of Corporate Social Responsibility (CSR). 1 In 2012, the two most reputable U.S. firms
(for which data was available) spent $248.5 million (Disney) and $904 million (Microsoft) on
CSR, according to the Reputation Institute, a reputation management consultancy. 2 Recently,
states have even passed legislation to make it easier for firms to preserve social or environmental
goals, for example by incorporating as Benefit Corporations or LC3s.
Two schools of thought dominate the debate on the relationship between CSR and firms’
financial interests. The first and arguably most popular is that firms can “do well by doing
good.” This is naturally touted by businesses that conduct CSR and beneficiaries of CSR
(e.g., consumers, activists, communities), but is also bolstered by management literature (see
Margolis, Elfenbein and Walsh (2007) for an overview of the literature). The second school
of thought, notoriously championed by Milton Friedman,3 is that CSR is at best a distraction
from a firm’s main purpose and at worst a way for managers to use other people’s money
toward their personal projects. This position tends to be largely supported, though by no
means exclusively, in the finance literature (see for example the recent study by Cheng, Hong
and Shue (2013)).
Critics of the “doing well by doing good” argument point to the lack of solid empirical
evidence to support a causal relationship. A related problem is that the rationale underlying
the argument is deceptively vague. Some argue that CSR’s benefit for business comes from
consumers willing to pay more for ethical products. Others believe company ethos is mostly
important in attracting and retaining talent. Yet others claim that costs of doing business
are simply lower with sustainable practices. While it is certainly possible to have multiple
mechanisms at play, researchers have struggled to pin down a compelling reason for the success
of CSR. This undermines claims that higher CSR engagement leads to better firm performance.
Proponents of a neutral or negative relationship, on the other hand, have a convincing
mechanism to explain the popularity of CSR in the form of agency theory. Certainly, manager
interest is an important reason for companies engaging in CSR.4 Nonetheless, this explanation
is not entirely satisfactory in that CSR activities would not be so public if they amounted only
to managers expropriating shareholders for their private benefit. So why do managers keep
pursuing CSR?
In this paper, I explore another possibility. While CSR may not directly benefit the company
in the sense that it is often a cost rather than a source of income, it may still be a shareholder
value maximizing endeavor if it provides regulatory insurance for the company. I use the term
1
2011 KPMG Report
2
PR News, January 30, 2011. “How Much the Most Reputable Companies Spend on CSR.”
3
The New York Times Magazine, September 13 1970, “The Social Responsibility of Business is to Increase its
Profits”
4
Forbes, October 17, 2012. “The Six Reasons Why Companies Actually Wind Up Embracing CSR.”

Electronic copy available at: http://ssrn.com/abstract=2547994

 insurance loosely, to mean both lower losses in the case of an accident and higher chances of
success if a project requires public approval. The mechanism I propose for this insurance is the
following. Engaging in CSR generates goodwill on behalf of the community in which the firm
operates, including regulators. When the firm is involved in an accident, the community is more
likely to cut it some slack if the firm is perceived as a “good corporate citizen.” Conversely, the
community may more readily approve an application or grant an award to a “good corporate
citizen.” Interviews with managers suggest they, at least, believe this to be the case.5 In this
view of CSR, it would make sense to observe both negative returns to CSR much of the time
(the “insurance premium”) and managers widely advertising their firms’ CSR activities.
An important concern in the existing literature is that correlation between CSR and firm
outcomes may be driven by omitted variables or reverse causality. For example, more profitable
firms may spend more on CSR simply because they have more leeway to do so (McGuire,
Sundgren and Schneeweis 1988, Hong, Kubik and Scheinkman 2012). To address these concerns,
I propose a new empirical approach using constituency statutes as an instrument for a firm’s
level of CSR. Constituency statutes are laws passed mostly in the late 1980s and early 1990s that
provide legal protection for directors considering the interests of non-shareholder constituents
in corporate actions. My instrument consists of an indicator for whether a firm’s state of
incorporation includes a constituency statute.
Constituency statutes provide a good instrument for CSR because they are explicitly de-
signed to make it easier for directors to consider other stakeholder interests. Many (though not
all) states passed these laws in the wave of anti-takeover legislation in the late 1980s, and in par-
ticular in response to rulings favoring shareholder primacy over other constituents.6 However,
the vast majority of states made the laws apply in all corporate decisions, not only in takeover
contexts.7 Importantly, the laws typically define non-shareholder constituents as community,
environment, employees and consumers (Geczy, Jeffers, Musto and Tucker forthcoming), which
overlaps nicely with stakeholder categories in the CSR space. Finally, Geczy et al. (forthcom-
ing) construct a history of cases citing these laws, and confirm that the laws were enforced
and indeed expanded the rights of directors to engage in non-shareholder stakeholder-oriented
policies.
Equally important, these laws are unlikely to be correlated with other variables driving
firm outcomes. Most of the firms in my analysis incorporate long before constituency laws
are passed. Virtually no firms switch their state of incorporation to go from a constituency
state to a non-constituency state, or vice versa, after laws were passed. I also show that
constituency and non-constituency firms do not differ along important observable dimensions
such as revenue, total assets, EBITDA or market capitalization. Finally, there is no evidence
that investors negatively reacted to constituency laws (Geczy et al. forthcoming).
5
Financial Times, June 22 2011, “License to Operate: Goodwill May Be Key to Gaining Green Light.”
6
See Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc. (Del. 1986)
7
In untabulated results, I separate out the more restrictive statutes and find, as expected, that results are stronger
for the unrestricted statutes.

3
 To test my hypothesis, I consider both awards and penalties granted to firms by the gov-
ernment. Specifically, I use novel data on contracts awarded by the federal government and
fines imposed by the Occupational Safety and Health Administration (OSHA). I find that
higher CSR is associated with obtaining more contracts from the government, and that these
additional contracts correspond to a reasonably large economic boon for firms, amounting to
roughly four percent of the average firm’s market capitalization. In terms of negative shocks, I
also find that higher CSR predicts lower monetary penalties for OSHA violations of the same
type and gravity. Since individual OSHA penalties are small, the result is less economically
meaningful. However, OSHA data provides a unique setting to control for the nature and
gravity of the violation, and the negative relationship between CSR and penalty amounts is
robust to including a long list of violation characteristics. Together, these results support the
hypothesis that engaging in CSR leads to both more leniency and more generosity on behalf of
the government.
I also provide evidence that community perception is a critical channel through which this
effect operates. I hand-collect data from the 100 Best Corporate Citizens lists published an-
nually by Corporate Responsibility Magazine (formerly Business Ethics Magazine), and derive
the algorithm used to construct the lists each year. I then reconstruct the likely 100th-150th
firms (“runners-up”) and compare their outcomes to firms at the bottom of the list. I provide
evidence that both groups are similar across important dimensions, such as level of CSR, firm
size and profitability. Given that the 100 Best Corporate Citizens list was ranked third most
influential business ranking by a PRWeek-Burson-Marsteller CEO Survey in 2004, after Fortune
magazine’s Most Admired Companies and 100 Best Companies to Work For, I argue that being
placed on the list thus provides a quasi-random boost to public perception of the firm. I find
that firms that make the list are more likely to obtain government contracts relative to firms
that just miss the list. Making the list is also associated with more money from government
contracts, with an average magnitude of close to one percent of firms’ market capitalization.
This is consistent with a mechanism that relies on goodwill from being perceived as a good
corporate citizen.
Most of the related literature on social responsibility in finance focuses on its direct impact
on financial performance.8 For example, Konar and Cohen (2001) report a positive link between
environmental performance and the market’s valuation of a firm’s intangible assets. Flammer
(2013) finds positive announcement returns for CSR-related shareholder proposals. Di Giuli
and Kostovetsky (2014), on the other hand, use CEOs’ political affiliation to instrument for
CSR levels and find that CSR is a direct expense to firm value.
A separate strand of literature discusses agency problems in the context of social respon-
sibility. Tirole (2001) and Stein (2003) discuss potential agency costs of pursuing social re-
sponsibility through the corporation from a theoretical perspective. In line with Friedman’s
argument, Cheng et al. (2013) find that managers are less likely to pursue CSR when they
8
Margolis et al. (2007) provide a thorough survey of this literature.

4
 own more of the company or when they are more closely monitored. “Quiet life” arguments
(Bertrand and Mullainathan 2003) also imply an agency view of CSR, in that managers are
engaging in stakeholder-friendly policies for personal convenience.
This paper is most closely related to four recent studies that examine indirect effects of
CSR. Albuquerque, Durnev and Koskinen (2012) also look at the insurance aspect of CSR,
but through consumer loyalty rather than regulatory goodwill. They find evidence that firms
with higher levels of CSR have lower betas. Similarly, Minor and Morgan (2011) report that
higher CSR is associated with a less negative stock price response to product recalls. Hong and
Liskovich (2014) and Godfrey, Merrill and Hansen (2009) examine downside penalties. The
former look at bribery penalties under the Foreign Corrupt Practices Act and find they are
negatively correlated with CSR levels. The latter conduct an event study of 178 negative legal
and regulatory actions. They find that certain types of CSR provide “insurance-like” benefits
in this context, but not others.
My paper complements this research by looking at evidence of increased generosity as well
as leniency on behalf of the government. Furthermore, I provide a new empirical approach to
address well-documented omitted variable (McGuire et al. 1988, McWilliams and Siegel 2000,
Margolis et al. 2007) and reverse causality (McGuire et al. 1988, Hong et al. 2012) concerns in
understanding the relationship between CSR and firm outcomes.
The remainder of the paper is structured as follows. Section 2 introduces the data used in
the analyses. Section 3 reviews the empirical approach. I present the results in section 4 and
conclude in section 5.

2 Data
2.1 Corporate Social Responsibility
CSR is “generally understood as being the way through which a company achieves a balance
of economic, environmental and social imperatives ... while at the same time addressing the
expectations of shareholders and stakeholders.”9
To measure CSR I use the Kinder, Lydenburg, Domini & Co (KLD) index. The KLD index
is arguably the most widely used tool for measuring CSR. KLD scans public databases and
news reports to track company strengths and weaknesses along multiple dimensions of CSR.
For the purpose of this paper I focus on five categories of CSR: community, diversity, employee,
environment and product. Each category is broken down further into strengths and concerns
that are coded as 1 (for presence of trait) or 0 (for absence). For example, the community
category includes charitable giving, support for housing, support for education and volunteer
programs as strength traits. Concern traits include investment controversies, negative economic
impact and tax disputes. A description of categories and traits is included in the appendix and
9
United Nations Industrial Development Organization

5
in the KLD Research & Analytics (2006) manual.
Following Cheng et al. (2013), I construct an annual aggregate CSR score for each firm by
adding the firm’s strengths and subtracting its concerns across all five categories. Cheng et al.
(2013) review various advantages and drawbacks of this measure, and conclude that while the
measure is imperfect, it is a reasonable proxy for firm goodness and CSR. In particular, they
find that the KLD score predicts other measures of corporate goodness such as donations, and
comports with anecdotal information on corporate goodness across companies and over time.
I also explore robustness to different definitions of the CSR score. Depending on the outcome
variable of interest, we can be concerned that some traits within the aggregate CSR score are
related to the dependent variable through a different mechanism. For example, in the case of
government contracts, product quality traits could lead to different contracting outcomes. For
OSHA penalties, employee safety and health traits could reflect particularly egregious OSHA
violations. In both cases, I exclude the problematic traits from the aggregate CSR score for
that analysis.
In 2010, KLD was acquired by MSCI and introduced significant changes to its rating
methodology. The sample of government data begins in 2000. As a result, I restrict my
attention to the 2000-2010 period. Table 1 reports summary statistics for CSR measures in my
final sample of firm-year observations.

2.2 Constituency Laws and State of Incorporation

For data on constituency laws, I rely largely on Geczy et al. (forthcoming), who review state
legislative session documents to verify the correct passage dates of the laws. The vast majority
of these laws are passed before 1995. The latest state, Texas, passes a constituency statute in
2003. As a result, the instrument is largely cross-sectional.
I provide a list of all relevant laws and passage years in the appendix. States marked with
an asterisk have laws that apply only in takeover contexts. Results reported in section 4 are
robust to excluding these laws. Geczy et al. (forthcoming) also review the language of the laws
and assemble a history of cases citing the laws to confirm the relevance of the statutes. I further
discuss these and other traits as they relate to the empirical analysis in section 3.1.
Constituency laws apply to firms incorporated in the state. To identify the state of in-
corporation , I use the data assembled by Gormley and Matsa (2014). This data tracks the
historical state of incorporation until 2006. I fill in the remaining years (2007-2009) with the
latest information from the Compustat database.

2.3 Government Contracts

Government contracts are available via usaspending.gov for fiscal years 2000-2010. The
dataset includes all contracts awarded by federal agencies. Because of significant changes to
the KLD rating methodology in 2010, I restrict my attention to the 2000-2009 period. For every

6
 contract I observe the government agency responsible for the contract, the dollars obligated for
the contract, and the Dun & Bradstreet DUNS identifier for the contracting company, among
other characteristics.
The CSR data from KLD identifies firms with Center for Research in Security Prices (CRSP)
CUSIP identifiers, while government records (both for contracts and OSHA) track businesses
with Dun & Bradstreet DUNS identifiers. Thus to match contracts to firms in the KLD data
set, I need to construct a crosswalk from DUNS to CUSIP identifiers. To do this I rely primarily
on Bureau Van Dijk’s Orbis database. Orbis provides both International Security Identification
Number (ISIN) and DUNS identifiers for firms. A firm’s ISIN is based on its 9-digit CUSIP with
an additional check digit at the end, plus the country code (in my case “US”) at the beginning.
I derive the CUSIP identifier from the firm’s ISIN and collect DUNS numbers corresponding to
the CUSIP. I do this for all firms in the Orbis database currently or previously publicly listed
and incorporated in the United States.
I am able to match 18,233 firm-year level observations from the KLD database to at least
one DUNS business number. I restrict my analysis to this subset of firms. I match these
observations to the 2000-2009 government contract data using DUNS numbers and the year
the contracts were signed, and find 8,600 firm-years with one or more contracts, representing
46% of my observations.
Table 2 reports summary statistics for both the universe of firm-year observations and the
subset of observations with at least one government contract (the “contracted” set). Since 54%
of my observations do not have any government contracts, the majority of values for both the
number and value of contracts is zero in my universe of observations. The average number of
contracts for contracted firms is 655, while the average value of a contracting portfolio for this
set of firms is $170 million. However, these values are strongly skewed. The median number of
contracts is only 25, and the median dollars associated with contracts is $1.16 million.

2.4 OSHA
The Occupational Safety and Health Administration (OSHA) is a federal agency responsible
for monitoring workplace safety. It has jurisdiction over almost all non-governmental U.S.
workers.10 OSHA can inspect businesses at random, although the agency prioritizes situations
of imminent dangers, accident investigations, and complaints or referrals. I provide a breakdown
of the inspection types in my sample. Inspections are always conducted without advance
notice, although in special circumstances OSHA may give a notice of less than 24 hours to the
employer.11 While a business can refuse an OSHA inspection without a warrant, almost none
do, as requiring a warrant tends to invite more scrutiny and result in more citations.12
10
Those not covered by OSHA include self-employed workers, immediate family members, farm employers, and
workers whose hazards are regulated by another federal agency https://www.osha.gov/OSHA FAQs.html
11
https://www.osha.gov/Publications/osha2098.pdf
12
http://www.pedersenhoupt.com/newsroom-publications-46.html

7
 OSHA conducts close to 40,000 inspections per year.13 If OSHA officials find a violation
during their inspection, they issue a citation and proposed penalty within six months. The
company may then appeal to the OSHA Area Director, and the penalty amount can be reduced
before the final penalty amount is established. Guidelines exist for the penalty amount for each
type of violation, but inspectors and area directors have discretion in both the initial and final
penalty amounts assessed.14 Violations range from serious to “other-than serious.” An example
of a serious violation is not requiring steel-toe boots for employees who carry heavy loads. An
example of an other-than-serious violation is failure to post required documentation in work
areas.15
I obtain detailed inspection and violation data on OSHA from the Department of Labor’s
online data catalog.16 Table 4 provides an overview of the variables I collect.
OSHA also uses Dun & Bradstreet DUNS numbers to identify businesses. However, OSHA
inspections occur at the establishment level and are consequently recorded with establishment
names and DUNS numbers. Unfortunately, these are often different from parent company
identifiers. I have obtained a match of OSHA inspections and violations to parent company
names for the 2008-2009 period. 17 I clean parent company names of extraneous components
(e.g. punctuation, The, Inc) and standardize formats (e.g. 3M becomes THREE M) and match
this data to similarly cleaned and standardized company names in the KLD data set 2008-2009.
I exclude construction businesses, which tend to have a different pattern of inspections and
violations than other firms.
I obtain 6,977 observations representing 1,751 establishments and 730 unique CUSIPs. Table
4 reports summary statistics for the matched violation-level data.

2.5 100 Best Corporate Citizens Lists

Starting in 2000, Corporate Responsibility (CR) Magazine (then Business Ethics Magazine)
began publishing annual lists of 100 Best Corporate Citizens. CR Magazine prides itself on
using numbers to drive its rankings. Each year analysts construct an aggregate score that
represents corporate citizenship, and select the top 100 firms directly based on this score. 18
From 2000 through 2007, these lists were constructed using KLD data, though the exact
algorithms changed year to year. I hand collect the annual lists along with reported components
and final scores. Using the names and tickers provided in the lists, I match 868 observations to
13
https://www.osha.gov/oshstats/commonstats.html
14
https://www.osha.gov/Publications/osha2098.pdf
15
http://work.chron.com/types-osha-violations-10693.html
16
Available at http://ogesdw.dol.gov/views/data catalogs.php
17
I am extremely grateful to Adam Finkel, professor at the University of Pennsylvania Law School and former
Director of Health Standards Programs at OSHA, both for sharing his data and for his valuable insights on OSHA.
18
CR Magazine additionally excludes firms for which notable concerns emerged that were not captured in its score
(e.g., a pay scandal that was revealed after the period over which the scores were constructed), but since these
occasions are rare I abstract from them in the following analysis.

8
CSR data from KLD and return data from Compustat. I am able to back out the algorithm used
to construct the list for each year from 2001 through 2007. I first use the components reported
in the annual lists to verify which variables were used to construct the reported score and in
what proportion. Table 8 reports the aggregate fit of the reconstructed annual algorithms using
components reported in the list. The R-squared is almost always one and always above 92%. I
then combine information from the data releases with a regression of each component on likely
sources to reconstruct the list score directly from KLD and Compustat data. For example, the
reported community component for the 2001 list score is a standardized version of the firm’s
average KLD community CSR score 1997-1999. The same reported community component for
the 2003 list score is a standardized version of the firm’s 2001 KLD community CSR score. I
report the results from these regressions in table 9. The sample size for these regressions is
somewhat smaller due to missing lagged values. The average R-squared is 77%, with the best
matches occurring earlier in the sample. While the predicted list score is not perfect, a ranking
based on this predicted list score accurately predicts list firms to be in the top 100 85% of the
time. When firms are incorrectly predicted to miss the list, they were typically predicted very
near to the top 100.
My final sample consists of firms ranked 50-100 in the 100 Best Corporate Citizens list over
the period 2001-2007, as well as the 50 firms not present in the list which ranked highest with my
predicted list score in each year (“runners-up”). After matching to DUNS numbers, the result
is 590 firm-year observations. I provide additional summary statistics on these observations in
Tables 6 and 7. I discuss my empirical approach and assumptions for using this data below in
section 3.2.

3 Empirical Approach
3.1 Instrumental Variable
An important criticism of existing research on CSR is that studies fail to account for poten-
tial correlation between CSR and unobserved variables that also affect performance. Reverse
causality is another concern: firms that do better have more slack to spend on CSR. In their
meta-analysis of the relationship between CSR and firm performance, Margolis et al. (2007)
emphasize the need for any future study of the subject to account for both omitted variables
and reverse causality.
To address this concern, I propose a novel approach that uses state laws called constituency
statutes as instrumental variables for the level of firms’ CSR. Instead of directly estimating
the effect of CSR on firm outcomes by ordinary least squares, I use a two stage least squares
regression. The first stage estimates the effect of being incorporated in a constituency state on
a firm’s CSR level. The second stage uses the predicted level of CSR from the first stage to

9
explain firm outcomes.

CSRit = α0 + α1 constituencyjt + xit + uit (1)

yit ˆ it + xit + it
= β0 + β1 CSR (2)

where yit is the firm outcome (e.g., number of contracts or penalty amount), CSR ˆ it is the
firm’s predicted level of CSR from the first stage, xit are control variables, constituencyjt is
an indicator for whether the firm is incorporated in a state with a constituency law or not and
uit and it are error terms. I include industry-year fixed effects as control variables to account
for industry trends. I define industry here using four-digit SIC codes. All standard errors are
clustered at the state of incorporation to account for serial correlation as well as cross-sectional
correlation in the state of incorporation.
Two assumptions underpin this approach. The first assumption is that incorporation in a
constituency state predicts the level of CSR. The second assumption is that incorporation in
a constituency state is not in any other way related to firm outcomes. In other words, the
covariance between constituencyit and it should be zero. This is a necessary assumption for
an unbiased estimate of the effect of CSR on firm outcomes, β̂it .
The first assumption, also known as the relevance condition, can be tested. In Table 5
I estimate the relationship between incorporation in a constituency state and the CSR score
calculated from KLD data. In column (1), I show a statistically significant relationship be-
tween the aggregate CSR score and incorporation in a constituency state. I repeat this for
each category composing the aggregate CSR score in columns (2) through (6). Because these
categories have less variation than the aggregate measure (Cheng et al. 2013), the relationship
with incorporation in a constituency state is not always statistically significant above a 90%
threshold. However it is clear that each category contributes to the overall positive relation-
ship. Finally, in columns (7) and (8) I verify correlation with the total count of strengths and
concerns separately. The relationship is as expected: incorporation in a constituency state
predicts higher strengths and lower concerns in CSR.
Additionally, Geczy et al. (forthcoming) construct a history of cases citing constituency laws
in the years since the laws were passed and review the ways in which the laws were enforced.
They find that the laws did in fact lead to expanded discretion for managers to take stakeholder-
oriented decisions. The constituents highlighted in the laws themselves – community, employees,
consumers (product) and environment – all correspond directly to categories of CSR measured
by KLD. Atanassov (2013) also examines constituency laws within a difference-in-differences
framework over the period the laws were passed. This framework allows him to show that the
passage of the law itself led to higher CSR, rather than being due to pre-existing cross-sectional
differences.
The second assumption, also known as the exclusion restriction, is that the instrument
constituencyjt is not correlated with any element in the error term it . While this is not

10
testable, there are several reasons to believe this is true. First, most of the firms in my sample
were incorporated long before constituency statutes were enacted. Virtually no firms switch
from incorporation in a constituency state to incorporation in a non-constituency state, or vice
versa, after the laws were passed.
Table 3 provides summary statistics of firm characteristics for both groups of observations.
These include revenue, net income, total assets, capital expenditure, EBITDA, market capital-
ization and number of employees. None of the differences are statistically significant. Finally,
there is no evidence that investors reacted negatively to constituency laws (Geczy et al. forth-
coming).

3.2 100 Best Corporate Citizens Lists

The instrumental variable approach described above helps to address concerns about omit-
ted variables and reverse causality in the relationship between CSR and firm outcomes. How-
ever, it does not address the channel through which this relationship may operate. In order to
shed light on how higher levels of CSR may lead to obtaining more government contracts, for
example, I devise the following analysis. Using the sample described in section 2.5, I compare
firms in the bottom fifty of the 100 Best Corporate Citizens lists with a derived list of the next
fifty runners-up, each year from 2001 through 2007.

yit = γ0 + γ1 1{100 Best list}it + xit + it (3)

where yit is the firm outcome (e.g., number of contracts), 1{100 Best list}it is an indicator
for whether the firm is part of the 100 Best list, and xit are control variables. In the results
reported in Table 15, these controls include the predicted list score or the same year Aggregate
CSR Score, and industry or industry-year fixed effects. Because I have so few observations, in
this analysis I use Fama-French industry codes rather than the more comprehensive four-digit
SIC codes.
If higher CSR levels are associated with a greater likelihood of obtaining government con-
tracts because the government requires a minimum level of corporate citizenship, then condi-
tional on the level of CSR, making the list of 100 Best Corporate Citizens should not matter.
However, if the positive relationship depends on how well the firm is perceived, then appearing
in the list is likely to matter above and beyond the actual level of CSR.
The main assumption underlying this analysis is that appearing in the list provides a dis-
continuity in how the firm is perceived, without corresponding to a discontinuity either in
the actual level of corporate citizenship or in any other variable that may be correlated with
obtaining more contracts from the government.
In 2004 (the middle of my sample), a PR Week-Burson-Marsteller CEO survey ranked
the 100 Best Corporate Citizens list as the third most influential business ranking, behind

11
 Fortune’s Most Admired Companies and 100 Best Companies to Work For.19 Making the list
is then widely publicized by firms through press releases and notices on their website, and the
whole list is typically re-printed in other magazines, such as Forbes. On the other hand, CR
Magazine does not publish the list of firms which just missed the cut-off for the list, and from
this researcher’s experience at least, deriving the 100th-150th firms that just missed the list is
possible but not easy. Thus I argue that being placed on the list represents a quasi-random
boost to a firm’s reputation as a good corporate citizen, relative to firms that just missed being
placed on the list.
Moreover, Tables 6 and 7 present summary statistics of firm characteristics and CSR scores
for both groups of observations. The two groups appear to be similar across measures revenue,
net income, and size among others. None of the differences are statistically significant. The
two groups are also very similar in terms of the amount and type of CSR they pursue.

4 Results
4.1 Awards: Evidence from Government Contracts
I first consider whether higher levels of CSR are associated with an increased likelihood
of obtaining awards, in the form of federal government contracts. I examine three outcome
variables. The first variable, Contracted, is an indicator for whether the firm was awarded any
government contracts in that year. The second, Ln(1+Number of Contracts), is the natural
log of one plus the number of government contracts awarded to the firm in that year. Firms
without any contracts are included and have a value of ln(1) = 0 for this outcome. The
log transformation makes the distribution of outcomes closer to a normal distribution. While
somewhat unorthodox, adding one to the number of contracts before taking the log allows me
to keep observations with zero government contracts, which are important for this analysis.
All results are robust to using a linear specification with untransformed outcomes. Similarly,
Ln(1+Dollars Obligated) is the natural log of one plus the total dollars associated with the
firm’s government contracts in that year. Firms without any contracts are included and have
a value of ln(1) = 0 for this outcome.
Table 10 presents estimates of an ordinary least squares (OLS) regression of these outcomes
on CSR levels. I control for individual industry trends by including industry-year fixed effects,
where industry is defined as the four-digit SIC code. Errors are clustered at the state of
incorporation to allow for correlation in the time series and across firms incorporated in the
same states. The estimates are all positive and strongly statistically significant.
The estimate in the first column suggests that an additional point of CSR (one more strength
or one less concern) is associated with a 2% greater chance of having at least one government
contract. Because of the transformation of the second two outcome variables, the interpretation
19
http://www.burson-marsteller.com/press-release/news-releases-ceo-survey/

12
of estimates in the second and third column depends on the level of the dependent variable.
For the average observation, the estimate in column (2) suggests a 18% increase in the number
of contracts associated with one more point of CSR, which corresponds to a 0.02 standard
deviation increase. Note that as the number of existing contracts decreases, the percentage
increase implied by the estimate rises at the rate of 1+y y , where y is the dependent variable,
here the number of contracts. Similarly for the average firm, the estimate in column (3) implies
a 56% increase in the amount of money associated with the firm’s government contracts, which
corresponds to a 0.05 standard deviation increase.
These results are consistent with the hypothesis that the government is more generous
with firms that act as better corporate citizens. However, it is possible that the correlation is
driven by omitted variables, such as the profitability or size of the firm. In Table 12, I verify
that the association reported above is robust to controlling for sales, assets and EBIT. Still,
it is impossible to control for everything directly. I turn instead to the instrumental variable
approach discussed in section 3.1.
Table 12 presents estimates of the two stage least squares regression of contract awards on
CSR level. Panel A reports the results from the first stage of the regression, and confirms that
incorporation in a constituency state is associated with a greater level of CSR. Specifically,
incorporation in a constituency state corresponds to a 0.10 standard deviation increase in CSR
score, on average. While this number is relatively small, it is statistically significant at the 95%
confidence level and robust.
Panel B reports the results from the second stage of the regression, using the same outcome
variables as in Table 10. The estimate in column (1) shows that a one point higher CSR score is
associated with a 17% greater chance of having a contracting relationship with the government.
The estimate is statistically significant at a 90% confidence level. This is noticeably higher
than the 2% estimate from the OLS regression. Consistent with this, column (2) shows that
for the average observation, a one point higher CSR score is associated with a 0.12 standard
deviation increase in the number of government contracts signed with the firm. That coefficient
is statistically significant at a 95% confidence level. Moreover, column (3) shows that this
corresponds to a 1.01 standard deviation increase in the value of a firm’s government contracts
for the average observation, with the estimate significant at a 90% confidence level. In other
words, firms with greater levels of social responsibility obtain more government contracts, and
these additional contracts are reasonably valuable. Indeed, a 1.01 standard deviation in the
value of government contracts represents close to $150 million, equivalent to about four percent
of the average revenue of approximately $4 billion (see Table 2). Together, these results provide
evidence consistent with the hypothesis that, all else equal, better corporate citizens benefit
from greater government generosity.

13
 4.2 Penalties: Evidence from OSHA Fines
Next, I turn to the leniency portion of my hypothesis by examining the relationship be-
tween firms’ CSR levels and the penalty amounts assessed for OSHA violations. While OSHA
penalties are admittedly small, they provide a uniquely controlled environment for testing the
leniency hypothesis. OSHA assesses penalties for a wide range of violations, that are likely
to occur in low as well as high CSR firms (in the following results I exclude employee safety
traits from the CSR score, for obvious reasons). For example, the most common violation in
general industry is hazard communication,20 which includes written communication programs
and employee information and training. Moreover, inspectors and area directors are explicitly
granted discretion in both the initial and final penalty amounts they assess, in particular if they
perceive “good faith” on the part of the firm. Finally, OSHA provides very detailed information
for each violation, which allows me to directly compare violations of the same type and gravity,
among other things.
In the following analysis, each observation represents a unique violation rather than a firm-
year aggregate. Several considerations motivate this approach. First, since OSHA uses estab-
lishment rather than parent company identifiers, it is infeasible at this stage to construct a
reliable universe of companies that were notinspected by OSHA. Second, using violation-level
observations allows me to control for the type and gravity of the violation. Third, this approach
provides greater statistical power.
I examine two outcome variables. The first, Ln(Initial Penalty), corresponds to the natural
log of the initial penalty assessed by the OSHA inspector on site. The second, Ln(Current
Penalty), corresponds to the natural log of the final penalty agreed upon, which may be lower
than the initial penalty. Since this data set represents only two years and 730 unique firms,
I use three-digit SIC codes to control for industry differences and do not include year fixed
effects. Errors are still clustered at the state of incorporation.
Tables 13 and 14 presents OLS regression results for different levels of control variables.
The estimates in columns (4) and (8) suggest that CSR is a statistically significant predictor
of the penalty level, after controlling for the type and gravity of the violation, as well as all
other observable characteristics of the violation. I include controls for the location of the estab-
lishment. The magnitude is quite small, around 1.5% for both initial and final penalty levels,
which combined with the relatively low levels of OSHA fines makes this result economically
small. However, it provides some evidence that firms with higher CSR do benefit from some
leniency.
Unfortunately, my current two-year sample of OSHA data is too limited – it represents
only 730 unique firms over two years – for my instrumental variable approach to work. A
regression of CSR scores on constituency status still estimates a positive relationship, but the
relationship is not statistically significant at a 90% confidence level. Given the breadth of
20
https://www.osha.gov/oshstats/commonstats.html

14
violation characteristics for which I am able to control, the OLS estimates still provide useful
information about the relationship between CSR and penalty amounts.

4.3 Channel: Evidence from 100 Best Corporate Citizens Lists

So far, I have documented that higher levels of social responsibility are associated with
obtaining more awards (in the form of federal government contracts) and lower penalties (lower
OSHA fines for the same type of violations). This evidence is consistent with the hypothesis
that being a “good corporate citizen” elicits both more generosity and more leniency from the
firm’s community.
There are several potential channels through which CSR may be associated with these
outcomes. In this paper I propose that the community’s perception of the firm is a critical
pathway – that engaging in social responsibility generates goodwill on behalf of a firm’s com-
munity, which is in turn reflected in greater generosity and leniency toward the firm. However,
it is also possible that the community dictates certain policies for firms with which it does
business. For example, the government may require firms with which it contracts to have a
certain level of minority representation or better employee or community policies. Alterna-
tively, if CSR heightens a firm’s productivity, this may also be reflected in a greater likelihood
of obtaining government contracts (although it is less clear why that should be associated with
greater leniency on behalf of OSHA).
To address these alternative channels, I use Corporate Responsibility Magazine’s annual
100 Best Corporate Citizens lists to isolate the “perception” of good corporate citizenship. My
approach is described in detail in section 3.2. To the extent that both groups of firms engage
in the same type and amount of CSR (as suggested in Table 7), making the list should only
matter if being known as a good corporate citizen is important, above and beyond actually
being a good corporate citizen.
I consider the same outcomes as in Tables 10 and 12. Table 15 presents the OLS results of
a regression of these outcomes onto an indicator for making the 100 Best Corporate Citizens
list and several control variables. Given the limited number of observations in this sample, I
use Fama-French industry groups to control for industry trends.
In column (1), I include only an indicator for presence in the 100 Best list. In columns (2)
and (3), I control for different measures of a firm’s CSR level. In the former I use my estimate
of the measure used to construct the list, while in the latter I use the concurrent aggregate
CSR score from KLD. I control for industry in column (4) and for industry-year in column
(5). Interestingly, the fit of the regression is much worse when controlling for both industry
and year, though this does not appear to affect the estimate of the “Presence in List” indicator
much.
Panel A reports that presence in the list is associated with a 7-9% higher likelihood of
having a contracting relationship with the government, about half the estimate from Table 12.
Panel B also shows a positive association between the number of contracts and presence in

15
the list, although none of the estimates are statistically significant above a 90% level. Finally,
estimates in Panel C suggest making the list is also positively reflected in the value of a firm’s
government contract portfolio. Estimates from all but the last specification are statistically
significant above a 90% confidence level. For the average firm this corresponds to a 0.15
standard deviation increase, which is equivalent to about 0.6% of market capitalization and
15% of the effect estimated in Table 12.

5 Conclusion
CSR is taking an increasingly important place in firms’ activities and shows no signs of
slowing down. Among firm managers at least, the consensus appears to be that doing good
is good for business. Yet the literature has failed to provide a compelling – and empirically
convincing – explanation to date. In this paper, I explored the possibility that CSR acts as
insurance, by driving the government to be more lenient with penalties and more generous with
awards.
To address omitted variable and reverse causality concerns in the relationship between CSR
and firm outcomes, I employ a novel identification strategy that uses state constituency laws
as an instrument for the level of CSR. Constituency statutes, passed mainly in the 1980s and
early 1990s, provide a mandate for directors wishing to pursue stakeholder-friendly policies,
such as pro-environment, pro-community, pro-employee policies that are an important part of
CSR.
To test the insurance hypothesis, I look at both penalties and awards granted to firms by
the government. Specifically, I consider fines imposed by the Occupational Safety and Health
Administration (OSHA) and contracts awarded by the federal government. I find that higher
levels of CSR are associated with obtaining more government contracts. Estimates from my
instrumented regressions suggest that for the average firm, an additional CSR strength (or one
less CSR concern) is associated with a 1.01 standard deviation increase in the total value of
the firm’s government contracts, which corresponds to about 4% of the market capitalization of
the average firm. When I compare OSHA violations of the same type and gravity and control
for all observable characteristics, I find that higher CSR also predicts lower penalties, though
that effect is economically small.
Finally, I provide evidence that public perception is an important pathway through which
CSR affects firm outcomes. I compare firms which were listed 51st-100th on the annual 100
Best Corporate Citizens lists to the predicted 101st-150th firms. I find that presence on the list
is associated with a greater likelihood of obtaining government contracts, even when controlling
for the amount of firms’ CSR. This effect is economically significant, corresponding to a 0.15
standard deviation in the total value of contracts for the average firm.

16
References
Albuquerque, Rui, Art Durnev, and Yrjo Koskinen, “Corporate social responsibility
and asset pricing in industry equilibrium,” Available at SSRN 1961971, 2012.
Analytics, Inc. KLD Research &, “Getting Started with KLD Stats and KLD’s Ratings
Definitions,” Technical Report 2006.
Atanassov, Julian, “Corporate Governance, Non-Financial Stakeholders, and Innovation:
Evidence from a Natural Experiment,” Technical Report 2013.
Bertrand, Marianne and Sendhil Mullainathan, “Enjoying the quiet life? Corporate
governance and managerial preferences,” Journal of Political Economy, 2003, 111 (5),
1043–1075.
Cheng, Ing-Haw, Harrison Hong, and Kelly Shue, “Do Managers Do Good with Other
People’s Money?,” Technical Report, National Bureau of Economic Research 2013.
Flammer, Caroline, “Does corporate social responsibility lead to superior financial perfor-
mance? A regression discontinuity approach,” University of Western Ontario Working
Paper, 2013.
Geczy, Christopher, Jessica Jeffers, David Musto, and Anne Tucker, “Institutional
Investing When Shareholders Are Not Supreme,” Harvard Business Law Review, forth-
coming.
Giuli, Alberta Di and Leonard Kostovetsky, “Are red or blue companies more likely to
go green? Politics and corporate social responsibility,” Journal of Financial Economics,
2014, 111 (1), 158–180.
Godfrey, Paul C, Craig B Merrill, and Jared M Hansen, “The relationship between
corporate social responsibility and shareholder value: An empirical test of the risk man-
agement hypothesis,” Strategic Management Journal, 2009, 30 (4), 425–445.
Gormley, Todd A and David A Matsa, “Playing it Safe? Managerial Preferences, Risk, and
Agency Conflicts,” Managerial Preferences, Risk, and Agency Conflicts (June 6, 2014),
2014.
Hong, Harrison G and Inessa Liskovich, “Crime, Punishment and the Halo Effect of
Corporate Social Responsibility,” Available at SSRN 2492202, 2014.
Hong, Harrison, Jeffrey D Kubik, and Jose A Scheinkman, “Financial constraints on
corporate goodness,” Technical Report, National Bureau of Economic Research 2012.
Konar, Shameek and Mark A Cohen, “Does the market value environmental perfor-
mance?,” Review of economics and statistics, 2001, 83 (2), 281–289.
Margolis, Joshua D, Hillary Anger Elfenbein, and James P Walsh, “Does it pay to be
good? A meta-analysis and redirection of research on the relationship between corporate
social and financial performance,” Ann Arbor, 2007, 1001, 48109–1234.

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McGuire, Jean B, Alison Sundgren, and Thomas Schneeweis, “Corporate social re-
sponsibility and firm financial performance,” Academy of management Journal, 1988, 31
(4), 854–872.
McWilliams, Abagail and Donald Siegel, “Corporate social responsibility and financial
performance: correlation or misspecification?,” Strategic management journal, 2000, 21
(5), 603–609.
Minor, Dylan and John Morgan, “CSR as reputation insurance: Primum non nocere,”
California Management Review, 2011, 53 (3), 40.
Stein, Jeremy C, “Agency, information and corporate investment,” Handbook of the Eco-
nomics of Finance, 2003, 1, 111–165.
Tirole, Jean, “Corporate Governance,” Econometrica, 2001, 69 (1), pp. 1–35.

18
6 Appendix
6.1 Constituency Statutes by Year
State Statute Passage Year
Arizona Ariz. Rev. Stat. Ann. §10-2702 1987
Connecticut Conn. Gen. Stat. §33-756(d) 1988
Florida Fla. Stat. §607.0830(3) 1989
Georgia O.C.G.A. §14-2-202(b)(5) 1989
Hawaii HRS §414-221(b) 1989
Idaho Idaho Code §30-1602; §30-1702 1988
Illinois 805 ILCS 5/8.85 1985
Indiana Burns Ind. Code Ann. §23-1-35-1(d) 1986
Iowa* I.C.A. §491.101B 1989
Kentucky* KRS §271B.12-210(4) 1988
Louisiana* La. Rev. Stat. §12:92(G) 1988
Maine* 13-C M.R.S. §831(6) 1985
Maryland MD Corps. & Assoc. §2-104(b)(9) 1999
Massachusetts ALM GL ch. 156D, §8.30(a)(3) 1989
Minnesota Minn. Stat. §302A.251 subd. 5 1987
Mississippi Miss. Code Ann. §79-4-8.30(f) 1990
Missouri* Mo. Rev. Stat. §351.347 1986
Nebraska Neb.Rev.St. §21-2095 1988
Nevada NRS 78.138(4) 1991
New Jersey N.J. Stat. §14A:6-1(3) 1989
New Mexico N.M.S.A. §53-11-35(d) 1987
New York NY Bus. Corps. Stat. §717(b) 1989
North Dakota N.D. Cent. Code, §10-19.1-50(6) 1993
Ohio Ohio Gen. Corp. Law §1701.59(F) 1984
Oregon* ORS §60.357(5) 1989
Pennsylvania 15 Pa C.S.A. §1715(a)(b) or §516(a) 1983
Rhode Island* R.I. Gen. Laws §7-5.2-8(a) 1990
South Dakota* S.D. Codified Laws §47-33-4(1) 1990
Tennessee* T.C.A. §48-103-204 1988
Texas Tex. Bus. Orgs. Code Ann. §21.401 2003
Vermont 11A V.S.A. §8.30(a)(3) 1998
Wisconsin Wis. Stat. §180.0827 1987
Wyoming Wyo. Stat. §17-16-830(g) 1989

19
6.2 Qualitative Issue Areas defined by KLD (2006 Manual)
Community
Strengths:
Charitable Giving (1991-2011)
Innovative Giving (1991-2012)
Support for Housing (1991-2009)
Support for Education (1994-2009)
Non-US Charitable Giving (1994-2009)
Volunteer Programs (2005-2009)
Other Strength (1991-2011)
Concerns:
Investment Controversies (1991-2009)
Negative Economic Impact (1991-2012)
Tax Disputes (1991-2009)
Other Concern (1991-2009)

Diversity
Strengths:
CEO (1991-2009)
Promotion (1991-2011)
Board of Directors (1991-2012)
Work/Life Benefits (1991-2011)
Women & Minority Contracting (1991-2012)
Employment of the Disabled (1991-2009)
Gay & Lesbian Policies (1995-2011)
Other Strength (1991-2011)
Concerns:
Controversies (1991-2012)
Non-Representation (1993-2011)
Other Concern (1991-2009)

Employees
Strengths:
Union Relations (1991-2012)
No-Layoff Policy (1991-1994)
Cash Profit Sharing (1991-2012)
Employee Involvement (1991-2012)
Retirement Benefits (1991-2009)
Health and Safety Strength (2003-2012)

20
Other Strength (1991-2011)
Concerns:
Union Relations (1991-2012)
Health and Safety Concern (1991-2012)
Workforce Reductions (1991-2009)
Retirement Benefits (1992-2009)
Other Concern (1991-2012)

Environment
Strengths:
Beneficial Products & Services (1991-2012)
Pollution Prevention (1991-2012)
Recycling (1991-2012)
Clean Energy (1991-2012)
Property, Plant and Equipment (1991-1995)
Other Strength (1991-2012)
Concerns:
Hazardous Waste (1991-2009)
Regulatory Problems (1991-2012)
Ozone Depleting Chemicals (1991-2009)
Substantial Emissions (1991-2012)
Agricultural Chemicals (1991-2009)
Climate Change (1999-2012)
Other Concern (1991-2012)

Product
Strengths:
Quality (1991-2012)
R&D/Innovation (1991-2009)
Benefits to Economically Disadvantaged (1991-2012)
Other Strength (1991-2009)
Concerns:
Product Safety (1991-2012)
Marketing/Contracting Concern (1991-2012)
Antitrust (1991-2012)
Other Concern (1991-2012)

21
 6.3 Tables

Table 1: KLD Summary Statistics (2000-2009)

mean sd min p25 p50 p75 max

Aggregate CSR Score -0.19 2.02 -9 -1 0 1 16
Aggregate CSR Score,
-0.17 1.98 -9 -1 0 1 16
excluding Product Quality
Aggregate CSR Score,
-0.23 1.92 -8 -1 0 1 15
excluding Employee Safety

Aggregate CSR Strengths 1.17 1.93 0 0 0 2 21

Aggregate CSR Concerns 1.36 1.56 0 0 1 2 13

Community CSR Score 0.04 0.49 -2 0 0 0 4

Diversity CSR Score 0.23 1.23 -2 -1 0 1 7
Employee CSR Score -0.19 0.85 -4 -1 0 0 5
Environment CSR Score -0.1 0.66 -5 0 0 0 4
Product CSR Score -0.18 0.59 -4 0 0 0 2

22
 Table 2: Summary Statistics for Sample of Government Contracts (2000-2009)

mean sd min p25 p50 p75 max

Universe
Contracted 0.46 0.50 0 0 0 1 1
Number of
300.30 2,608.26 0 0 0 18 95,209
Contracts
Total Dollars
Associated with
78.16 976.25 -165.05 0 0 0.77 37,663.88
Contracts
($Millions)

Contracted
Number of
654.67 3,820.97 1 5 25 134 95,209
Contracts
Total Dollars
Associated with
170.39 1,436.01 -165.05 0.09 1.16 12.28 37,663.88
Contracts
($Millions)
Average Dollars
per Contract 404.64 2,874.48 -4,537 8.74 33.25 134.5 110,000
($000s)

23
 Table 3: Firm Characteristics Across Constituency States

Not Constituency Constituency

Mean Std. Dev Mean Std. Dev
Revenue 4,297.20 14,986.38 3,948.63 15,644.14
Net Income 241.39 1,261.24 273.86 1,606.99
Total Assets 10,563.19 69,818.46 8,356.33 36,763.28
Cap. Exp. 250.46 1,014.81 211.32 955.80
EBITDA 757.23 2,893.59 730.71 3,331.02
Market Cap. 5,650.85 18,597.05 5,286.26 2,3107.77
Employees (000s) 14.76 62.85 12.29 34.05
All values in $ millions except where otherwise indicated

24
 Table 4: OSHA Summary Statistics (2008-2009)

mean sd min p25 p50 p75 max

Initial Penalty ($) 3,836.08 1,0019.44 50.00 900.00 1,625.00 2,975.00 70,000.00
Final Penalty ($) 2,852.30 7,849.73 38.00 525.00 1,000.00 2,250.00 70,000.00
Number of Instances 2.06 6.99 1.00 1.00 1.00 1.00 251.00
Number Exposed 21.39 105.63 1.00 1.00 3.00 10.00 5,000.00
Gravity 4.36 3.54 0.00 2.00 3.00 10.00 10.00
Health Violation 0.21 0.41 0.00 0.00 0.00 0.00 1.00
Union Representative 0.35 0.48 0.00 0.00 0.00 1.00 1.00
Subsidiary 0.15 0.36 0.00 0.00 0.00 0.00 1.00

Freq. Percent

Inspection Type
Accident 809 11.60
Complaint 1,710 24.51
Referral 694 9.95
Unprogrammed Rel. 244 3.50
Planned 3,401 48.75
Programmed Rel. 73 1.05
Programmed Other 30 0.43
Other 16 0.23
Total 6,977 100.00

Inspection Scope
Complete 3,584 51.37
Partial 3,375 48.37
Records 18 0.26
Total 6,977 100.00

Violation Type
Other 1,978 28.35
Repeat 184 2.64
Serious 4,673 66.98
Unknown 16 0.23
Willful 126 1.81
Total 6,977 100.00

25
 Table 5: CSR and Incorporation in a Constituency State

(1) (2) (3) (4) (5) (6) (7) (8)

Envi-
Com- Diver- Em- CSR
CSR ron- Product CSR
munity sity ployee Con-
Score ment CSR Strengths
CSR CSR CSR cerns
CSR

Constituency
0.213** 0.0328 0.0543 0.0447* 0.0306 0.0504 0.0859 -0.127*
State
(0.0815) (0.0229) (0.0602) (0.0229) (0.0234) (0.0319) (0.116) (0.074)

Observations 18,199 18,199 18,199 18,199 18,199 18,199 18,199 18,199

R-squared 0.002 0.001 0 0.001 0.001 0.002 0 0.002
Number of
industry-year 3,196 3,196 3,196 3,196 3,196 3,196 3,196 3,196
groups
*** p<0.01, ** p<0.05, * p<0.1
Standard errors: clustered at state of incorporation

Table 6: Firm Characteristics Across List Groups

101st-150th 51st-100th
Mean Std. Dev Mean Std. Dev
Revenue 10861.08 20848.82 7303.86 10535.85
Net Income 980.69 3049.91 646.34 1204.68
Total Assets 49990.82 180000 21658.25 50393.15
Cap. Exp. 450.77 843.71 348.49 643.83
EBIT 2381.01 6683.8 1171.16 1910.6
Market Cap. 21785.95 47150.77 15398.94 31030.43
Employees (000s) 29.81 49.31 28.7 54.87
Number of Obs. 308 282
All values in $ millions except where otherwise indicated

26
 Table 7: CSR Characteristics Across List Groups

101st-150th 51st-100th
Mean Std. Dev Mean Std. Dev
Aggregate CSR Score 2.6 2.31 2.79 1.83
CSR Strengths 4.09 3.02 3.85 1.92
CSR Concerns 1.49 1.76 1.06 1.18
Community CSR 0.59 0.97 0.46 0.78
Diversity CSR 1.64 1.74 1.61 1.48
Employee CSR 0.53 1.01 0.5 1.03
Environment CSR 0.19 0.73 0.24 0.66
Product CSR -0.34 0.95 -0.01 0.82

27
 Table 8: List Score Fit Using CR Magazine Components

2001 2002 2003 2004 2005 2006 2007

Community Relations 0.143*** 0.126*** 0.135*** 0.143*** 0.125*** 0.125*** 0.125***

(0.000163) (0.00652) (0.00480) (5.19e-05) (3.97e-05) (4.24e-05) (4.41e-05)
Diversity 0.143*** 0.134*** 0.136*** 0.143*** 0.125*** 0.125*** 0.125***
(0.000170) (0.00658) (0.00483) (5.30e-05) (6.16e-05) (5.69e-05) (5.78e-05)
Employee Relations 0.143*** 0.129*** 0.141*** 0.143*** 0.125*** 0.125*** 0.125***
(0.000183) (0.00751) (0.00563) (6.34e-05) (5.55e-05) (4.91e-05) (4.78e-05)
Environment 0.143*** 0.118*** 0.139*** 0.143*** 0.125*** 0.125*** 0.125***
(0.000244) (0.00934) (0.00664) (6.55e-05) (6.43e-05) (4.73e-05) (4.27e-05)
Customer Relations/Product 0.143*** 0.131*** 0.134*** 0.143*** 0.125*** 0.125*** 0.125***
(0.000206) (0.00879) (0.00600) (7.60e-05) (7.76e-05) (7.02e-05) (6.10e-05)
Governance 0.125*** 0.125*** 0.125***

28
(6.87e-05) (5.17e-05) (4.97e-05)
Human Rights 0.125*** 0.125*** 0.125***
(7.79e-05) (5.64e-05) (6.96e-05)
Average Return to Stockholders 0.125*** 0.125*** 0.125***
(4.97e-05) (6.55e-05) (6.03e-05)
Non-US Stakeholders 0.143*** 0.133*** 0.133*** 0.143***
(0.000195) (0.00923) (0.00668) (0.000124)
Average Return to Shareholders 0.519*** 0.101*** 0.196*** 0.143***
(0.000585) (0.00825) (0.00718) (7.53e-05)

Observations 95 96 95 96 96 99 94
R-squared 1.000 0.929 0.951 1.000 1.000 1.000 1.000
Standard errors in parentheses
*** p<0.01, ** p<0.05, * p<0.1
 Table 9: List Score Fit Using KLD & Compustat Components

The outcome variable is the score reported by CR Magazine. All variables are reconstructed using data from KLD or Compustat.

2001 2002 2003 2004 2005 2006 2007

Community Component 0.205*** 0.241*** 0.175*** 0.175*** 0.138*** 0.121*** 0.111***

(0.0187) (0.0157) (0.0128) (0.0128) (0.0144) (0.0181) (0.0233)
Diversity Component 0.124*** 0.115*** 0.110*** 0.110*** 0.0601*** 0.0495*** 0.0475***
(0.0131) (0.00866) (0.00723) (0.00723) (0.00897) (0.0117) (0.0154)
Employee Component 0.158*** 0.172*** 0.138*** 0.138*** 0.101*** 0.0742*** 0.120***
(0.0173) (0.0141) (0.0120) (0.0120) (0.0135) (0.0153) (0.0219)
Environment Component 0.146*** 0.145*** 0.150*** 0.150*** 0.1000*** 0.132*** 0.111***
(0.0249) (0.0194) (0.0159) (0.0159) (0.0209) (0.0198) (0.0212)
Product Component 0.159*** 0.153*** 0.143*** 0.143*** 0.0875*** 0.0252 0.0422
(0.0219) (0.0176) (0.0167) (0.0167) (0.0194) (0.0267) (0.0278)
Non-U.S. Stakeholder Component 0.552*** 0.169* 0.428*** 0.428***
(0.0919) (0.0857) (0.0643) (0.0643)

29
Human Rights Component 0.197*** 0.122** 0.111
(0.0472) (0.0546) (0.0844)
Corporate Governance Component 0.118*** 0.0959*** 0.0897***
(0.0204) (0.0241) (0.0278)
L.Return 0.0782 0.00934
(0.0479) (0.108)
L2.Return 0.109*** 0.0706*** 0.261*** 0.261*** 0.0415*** 0.0445 0.0108
(0.0172) (0.0242) (0.0314) (0.0314) (0.00700) (0.0693) (0.0156)
L3.Return 0.157*** 0.0545*** 0.00611 0.0454
(0.0327) (0.0112) (0.0251) (0.0893)
L4.Return 0.0729* 0.0840***
(0.0376) (0.0302)

Observations 71 75 84 84 86 84 79
R-squared 0.799 0.886 0.875 0.875 0.640 0.712 0.631
Standard errors in parentheses
*** p<0.01, ** p<0.05, * p<0.1
 Table 10: Government Contract Awards – OLS Regression

This table presents estimates of the ordinary least squares regression. Industry is defined as the four-digit SIC
code. There are three outcome variables: (1) Contracted is an indicator that takes the value of 1 if a firm has any
government contracts in that year, 0 otherwise; (2) Number of Contracts is ln(1+number of contracts); (3) similarly
Dollars Obligated is ln(1+dollars associated with contracts). The universe is firm-year level observations 2000-2009
covered by KLD and with at least one DUNS number matched to the CUSIP.

(1) (2) (3)

Contracted Ln(1 + No. Contracts) Ln(1 + Dollars)

CSR Score 0.0240*** 0.165*** 0.447***

(0.00407) (0.0228) (0.0515)

Observations 18,199 18,199 18,092

Number of industry-year groups 3,196 3,196 3,189
R-squared 0.01 0.024 0.017
*** p<0.01, ** p<0.05, * p<0.1
Standard errors: clustered at state of incorporation

30
Table 11: Government Contract Awards – OLS Regression including Revenue, Assets and EBIT

This table presents estimates of the ordinary least squares regression. Industry is defined as the four-digit SIC
code. There are three outcome variables: (1) Contracted is an indicator that takes the value of 1 if a firm has any
government contracts in that year, 0 otherwise; (2) Number of Contracts is ln(1+number of contracts); (3) similarly
Dollars Obligated is ln(1+dollars associated with contracts). The universe is firm-year level observations 2000-2009
covered by KLD and with at least one DUNS number matched to the CUSIP.

(1) (2) (3)

Contracted Ln(1 + No. Contracts) Ln(1 + Dollars)

CSR Score 0.0162*** 0.120*** 0.308***

(0.00425) (0.0229) (0.0582)
Revenue 5.09e-06*** 3.43e-05*** 8.98e-05***
(6.01e-07) (4.04e-06) (1.09e-05)
Total Assets 4.38e-07** 1.19e-06 5.62e-06
(1.96e-07) (1.18e-06) (3.54e-06)
EBIT -1.31e-06 7.05e-06 4.16e-06
(7.25e-06) (3.47e-05) (0.000123)

Observations 18011 18011 17904

Number of industry-year groups 3189 3189 3182
R-squared 0.049 0.105 0.08
*** p<0.01, ** p<0.05, * p<0.1
Standard errors: clustered at state of incorporation

31
 Table 12: Government Contract Awards – IV Regression

This table presents estimates of the two stage least squares regression. Industry is defined as the four-digit SIC
code. There are three outcome variables: (1) Contracted is an indicator that takes the value of 1 if a firm has any
government contracts in that year, 0 otherwise; (2) Number of Contracts is ln(1+number of contracts); (3) similarly
Dollars Obligated is ln(1+dollars obligated). The universe is firm-year level observations 2000-2009 covered by KLD
and with at least one DUNS number matched to the CUSIP.

Panel A: First Stage

(1)
CSR Score

Constituency State 0.210**

(0.0803)

Observations 18,199
Number of industry-year groups 3196
R-squared 0.002

Panel B: Two Stage Least Squares

(1) (2) (3)
Contracted Ln(1 + No. Contracts) Ln(1 + Dollars)

CSR Score 0.179* 0.843** 2.564*

(0.102) (0.405) (1.448)

Observations 18,199 18,199 18,092

R-squared 0.103 0.203 0.189
*** p<0.01, ** p<0.05, * p<0.1
Standard errors clustered at state of incorporation

32
 Table 13: Initial OSHA Penalties

This table presents estimates of the ordinary least squares regression. Industry is defined as the three-digit SIC
code. The universe is violation level observations 2008-2009 matched to CUSIPs covered by KLD.

(1) (2) (3) (4) (5)

CSR Score -0.00829** -0.00941** -0.00677** -0.00817*** -0.00946**

(0.00379) (0.00373) (0.00269) (0.00279) (0.00370)
Gravity 0.164*** 0.165*** 0.154*** 0.149*** 0.150***
(0.00698) (0.00701) (0.00208) (0.00302) (0.00346)
Number of Instances 0.000858 0.000748 0.000986** 0.000184
(0.00362) (0.000603) (0.000382) (0.000606)
-
Number Exposed -0.000146 -0.000116 -7.30e-05
0.000192***
(0.000128) (6.94e-05) (6.14e-05) (6.08e-05)
Health Violation 0.00781 -0.00326 0.000691
(0.0181) (0.0217) (0.0214)
Union Represented 0.113*** 0.0772***
(0.0147) (0.0193)
Subsidiary -0.0799*
(0.0411)

Observations 4,392 4,297 4,297 4,297 4,297

R-squared 0.427 0.424 0.618 0.628 0.665
Number of industries
185 185 185 185 185
(3 digit SIC)
Industry FE Y Y Y Y Y
Violation Type N N Y Y Y
Inspection Type N N N Y Y
Inspection Scope N N N Y Y
Establishment Site N N N N Y
Robust standard errors in parentheses
*** p<0.01, ** p<0.05, * p<0.1
Standard errors clustered at state of incorporation

33
 Table 14: Final OSHA Penalties

This table presents estimates of the ordinary least squares regression. Industry is defined as the three-digit SIC
code. The universe is violation level observations 2008-2009 matched to CUSIPs covered by KLD.

(1) (2) (3) (4) (5)

CSR Score -0.0147*** -0.0145*** -0.0104*** -0.0126*** -0.0146***

(0.00483) (0.00469) (0.00371) (0.00391) (0.00403)
Gravity 0.160*** 0.159*** 0.148*** 0.139*** 0.141***
(0.00807) (0.00755) (0.00170) (0.00190) (0.00272)
Number of Instances 0.00126 0.00117 0.00154*** 0.000634
(0.00379) (0.000756) (0.000478) (0.000566)
Number Exposed -5.33e-05 2.75e-05 -5.01e-05 6.63e-05
(0.000109) (4.05e-05) (7.33e-05) (5.32e-05)
Health Violation 0.0391 0.0227 0.0170
(0.0262) (0.0349) (0.0267)
Union Represented 0.110*** 0.116***
(0.0275) (0.0297)
Subsidiary -0.0858**
(0.0367)

Observations 3,774 3,695 3,695 3,695 3,695

R-squared 0.361 0.356 0.545 0.569 0.620
Number of industries
182 182 182 182 182
(3 digit SIC)
Industry FE Y Y Y Y Y
Violation Type N N Y Y Y
Inspection Type N N N Y Y
Inspection Scope N N N Y Y
Establishment Site N N N N Y
Robust standard errors in parentheses
*** p<0.01, ** p<0.05, * p<0.1
Standard errors clustered at state of incorporation

34
 Table 15: 100 Best Corporate Citizens Lists

Panel A: Contracted
(1) (2) (3) (4) (5)

Presence in List 0.0893** 0.0970** 0.0860** 0.0720* 0.0947**

(0.0405) (0.0411) (0.0404) (0.0386) (0.0482)
Predicted List Score 0.101 0.155 0.0475
(0.116 (0.109) (0.163)
CSR Score 0.0175*
(0.00965)

Observations 590 573 590 573 573

R-squared 0.008 0.011 0.014 0.257 0.011
Fixed effects Industry Industry-Year
Panel B: Ln(1 + No. Contrats)
(1) (2) (3) (4) (5)

Presence in List 0.214 0.192 0.175 0.0862 0.0503

(0.217) (0.217) (0.215) (0.198) (0.240)
Predicted List Score 1.718*** 2.131*** 1.629**
(0.613) (0.563) (0.812)
CSR Score 0.211***
(0.0513

Observations 590 573 590 573 573

R-squared 0.002 0.015 0.03 0.299 0.011
Fixed effects Industry Industry-Year
Panel C: Ln(1 + Dollars Obligated)
(1) (2) (3) (4) (5)

Presence in List 1.280** 1.340** 1.185* 1.023* 1.096

(0.637) (0.646) (0.633) (0.588) (0.733)
Predicted List Score 2.05 3.279** 2.234
(1.815) (1.668) (2.467)
CSR Score 0.461***
(0.152)

Observations 582 565 582 565 565

R-squared 0.007 0.01 0.023 0.301 0.008
Fixed effects Industry Industry-Year
*** p<0.01, ** p<0.05, * p<0.1

35