Social Responsibility and Firm's Objectives

Michele Fioretti (1)

1 ECON - Département d'économie (Sciences Po)

This paper shows that firms’ objectives can extend beyond profit maximization. I focus on a for-profit firm that offers charity auctions of celebrities’ belongings. The firm’s donations affect both revenues and costs. Counterfactuals from a structural model comparing the actual donations with the profit-maximizing benchmark indicate that the firm donates beyond profit-maximization. Linking this result to a change in the capital structure, I demonstrate that the firm’s objectives include both profits and donations. I also estimate a modest increase in consumers’ willingness to pay due to donations, suggesting that demand cannot explain firms’ investments in social responsibility.

Keywords: Objectives of the firm; Profit maximization measures; Corporate social responsibility; Donations; Structural estimation; Externalities

Domains: Economics and Finance

Michele Fioretti. Social Responsibility and Firm's Objectives. 2020. ⟨hal-03393065v1⟩