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Socially responsible corporations with heavy PAC contributors associated with higher stock returns

November 1, 2012

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Researchers found that companies were more likely to make social responsibility disclosures if they were headquartered in a state that traditionally has voted Democratic in national elections.

Companies that tout social responsibility and whose managers contribute to political action committees tend to provide higher returns to shareholders, suggests a new University of California, Davis, study.

“Especially for smaller public companies, if the firm has been active in disclosing corporate social responsibility measures and if the individuals in the company are politically active, there’s a good chance you will do better in the stock market if you invest in that company,” said Paul Griffin, a leading international authority in accounting and corporate disclosure and a professor at the UC Davis Graduate School of Management.

Griffin and co-author Yuan Sun, a doctoral candidate at the Haas School, UC Berkeley, analyzed extensive data on voluntary corporate social responsibility disclosures, campaign contributions and stock performance. Their findings are published in the working paper, “Strange Bedfellows? Voluntary CSR Disclosure and Politics.”

The researchers also found that companies were more likely to make social responsibility disclosures if they were headquartered in a so-called “blue state,” or one that traditionally has voted Democratic in national elections.

“We hypothesized that if a state where a corporation is located is blue, on balance, the customers, the suppliers, and even the shareholders have that same tendency to be blue,” Griffin said.

Griffin and Sun determined that companies that issue more press releases on CSRwire, an online news service that publishes reports issued by member organizations on issues related to sustainability and corporate social responsibility tend to have more management employees who contribute to political action committees. The correlation was strongest with individuals who donated to political action committees affiliated with the Democratic Party.

Additionally, the stock market reacted favorably when corporations posted news releases on the CSRwire. The market effect intensified if company managers also made contributions to political action committees.

“The effects on stock values of CSRwire releases are immediate and can continue for up to three months after the disclosure.” Griffin said.

Griffin cautioned that while the correlations are strong, researchers need to look more closely at the underlying pathways whereby CSR disclosure and political contributions combine to produce shareholder gains.

To measure companies’ social responsibility, the researchers studied more than 14,500 news releases posted between 2000 and 2011 by CSRwire. Griffin and Sun identified 4,781 releases that were issued by major, publicly traded U.S. companies.

The researchers also compiled Federal Election Commission data on individual contributions to political action committees for the same 11 years. The commission’s data lists the names, employers and job titles of individuals who donate to committees, as well as the political party affiliation of the committees.

Stock performance was measured by compiling stock movements of firms listed in a large database that includes stock prices of publicly traded firms.

Download the full study.

About the Graduate School of Management

Dedicated to preparing innovative leaders for global impact, the UC Davis Graduate School of Management is consistently ranked among the premier business schools in the United States and internationally. The school’s faculty members are globally renowned for their teaching excellence and research in advancing management thinking. Each year, the school provides a bold, innovative approach to management education to about 100 full-time MBA students at the UC Davis campus and 425 part-time MBA students in Sacramento and the San Francisco Bay Area. A Master of Professional Accountancy degree program launched in fall 2012.

About UC Davis

UC Davis is a global community of individuals united to better humanity and our natural world while seeking solutions to some of our most pressing challenges. Located near the California state capital, UC Davis has more than 34,000 students, and the full-time equivalent of 4,100 faculty and other academics and 17,400 staff. The campus has an annual research budget of over $750 million, a comprehensive health system and about two dozen specialized research centers. The university offers interdisciplinary graduate study and 99 undergraduate majors in four colleges and six professional schools.

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