The Influence of Corporate Social Responsibility on Lobbying Effectiveness: Evidence from Effective Tax Rates

Abstract

In modern society, there is a generally accepted notion that corporations should be socially responsible, but there is much disagreement over what exactly "social responsibility" means. The primary area of disagreement concerns whether or not firms have a duty to consider non-owner stakeholders in their decision-making process. This paper addresses the need to quantify the benefits of socially responsible activities that provide financial returns to shareholders while still addressing the needs of non-owner stakeholders. It investigates the extent to which the reputational effects of corporate social responsibility lead to increased effectiveness of corporate lobbying expenditures, as measured by effective tax rates. This interactive effect creates a tangible economic benefit for firms, and ultimately their owners, providing an opportunity for firms to address the interests of both non-owners and owners. I expect, and find, that firms that are more socially responsible get a higher return on their lobbying expenditures than firms that are less socially responsible, reflected in lower effective tax rates. This result suggests that the competing viewpoints of the stakeholder and shareholder theories may not be as diametrically opposed as prior literature has suggested. The financial benefits that can be gained from being socially responsible may result in bottom-line profits to the shareholders, while still addressing the needs and desires of non-owner stakeholders.