The impact of Social Responsibility on productivity and efficiency of US listed companies

We investigate whether inclusion and permanence in the Domini social index affects corporate performance on a sample of around 1000 firms in a 13-year interval by controlling for size, industry, business cycle and time invariant firm idiosyncratic characteristics. Our results find partial support to the hypothesis that corporate social responsibility (CSR) generates a transfer of wealth from shareholders to stakeholders. On the one side, the combination of entry and permanence into the Domini is shown to increase (reduce) significantly total sales per employee (returns on equity). On the other side, lower returns on equity seem nonetheless to be accompanied by relatively lower conditional volatility and lower reaction to extreme shocks of Domini stocks with respect to the control sample. The first two econometric findings match intrinsic characteristics since they are paralleled by significant differences in fixed effects between the control sample and firms which will become Domini affiliated in the sample period. Our conclusion is that Domini affiliation significantly reinforces traits of corporate identity which were already in place before entry. We also show that exit from Domini has strong negative effects on total sales per employee, returns on equity, investment and capital employed. An explanation for the “transfer of wealth” effect, suggested by the inspection of Domini criteria, is that social responsibility implies, on the one side, decisions leading to higher cost of labour and of intermediate output, but may, on the other side, enhance involvement, motivation and identification of the workforce with company goals with positive effects on productivity.