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A Modigliani-Miller Theory of Altruistic Corporate Social Responsibility
Topics in Economic Analysis & Policy (2011)
  • Joshua Graff Zivin, Columbia University
  • Arthur Small, Columbia University
A new theory of altruistic corporate social responsibility is developed. Firms that advertise their social and environmental good works in effect solicit charitable contributions from customers, employees, investors and other stakeholders. They compete with not-for-profits in the market to supply public and altruistic goods. To analyze how corporate altruism affects firm valuations, a model is developed in which investors gain utility both from personal consumption and from making donations to worthy causes. A share in a ``responsible'' firm is a charity-investment bundle. When individuals view corporations and not-for-profits as equally competent suppliers of charity-related ``warm glow,'' small changes in firms' social policies induce exactly offsetting changes in individuals' portfolio choices. There is no effect on firm valuations, and no change in the aggregate supply of good works. When a sizable fraction of investors prefer corporate philanthropy over direct charitable giving (e.g., to avoid taxation of corporate profits), firm valuations will be maximized by following social policies that involve strictly positive levels of corporate altruism.
  • corporate social responsibility,
  • green investing
Publication Date
September 6, 2011
Citation Information
Joshua Graff Zivin and Arthur Small. "A Modigliani-Miller Theory of Altruistic Corporate Social Responsibility" Topics in Economic Analysis & Policy Vol. 5 Iss. 1 (2011)
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