Nber Working Paper Series Financial Constraints on Corporate Goodness Harrison Hong Jeffrey D. Kubik Jose A. Scheinkman

NBER WORKING PAPER SERIES

FINANCIAL CONSTRAINTS ON CORPORATE GOODNESS
Harrison Hong
Jeffrey D. Kubik
Jose A. Scheinkman
Working Paper 18476 http://www.nber.org/papers/w18476 NATIONAL BUREAU OF ECONOMIC RESEARCH
1050 Massachusetts Avenue
Cambridge, MA 02138
October 2012

Hong and Scheinkman acknowledge support from the National Science Foundation through grants
SES-0850404 and SES-07-18407. We thank Joshua Margolis, Dirk Jenter, Jeffrey Wurgler and seminar participants at St Gallen, Shanghai Advanced Institude of Finance, NBER Corporate Finance Summer
Institute, Swedish Institute for Financial Research, and AFA Meetings helpful comments. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official
NBER publications.
© 2012 by Harrison Hong, Jeffrey D. Kubik, and Jose A. Scheinkman. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source.

Financial Constraints on Corporate Goodness
Harrison Hong, Jeffrey D. Kubik, and Jose A. Scheinkman
NBER Working Paper No. 18476
October 2012
JEL No. G30,G32,G39
ABSTRACT
An influential thesis, dubbed “Doing well by doing good,” argues that corporate social responsibility is profitable. But heterogeneity in firm financial constraints can induce a spurious correlation between profits and goodness even if the motives for goodness are non-profit in nature. We use two identification strategies to show that financial constraints are indeed an important driver of corporate goodness. First, during the Internet bubble, previously constrained firms experienced a temporary relaxation of their constraints and

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