*

Brian Kelleher Richter. Assistant Professor of Business, Economics, and Public Policy, Richard Ivey
School of Business, University of Western Ontario, 1151 Richmond Street North, London, Ontario N6A
3K7, CANADA. brichter@ivey.uwo.ca. office: +1 (519) 661-3267. Mobile (USA): +1 (310) 709-5745.
web: http://alum.mit.edu/www/bkr .

**
The lateset version of this paper is available on SSRN at: http://ssrn.com/abstract=1750368

***
This early stage research has already benefit from conversations with and comments from Ray Fisman,
Romain Wacziarg, John deFigueiredo, Bruce Carlin, Dan Treisman, Edward Leamer, J ason Snyder, Guy
Holburn, Adam Fremeth, Oana Branzei, Tima Bansal, and Peter Robertsin addition to audience members
at NYU Sterns 2010 Conference on Social Entrepreneurship and discussion participants engaged in the
Centre for Sustainable Value at the University of Western Ontarios Richard Ivey School of Business. I
thank J effrey Timmons and Krislert Samphantharak for helping to collect and code the lobbying data used
for an earlier project. I am also grateful for the support of the Harold and Pauline Price Center for
Entrepreneurial Studies Research at UCLAs Anderson School.



Good and Evil: The Relationship between
Corporate Social Responsibility and Corporate Political Activity

Brian Kelleher Richter
*
This draft: 28 January 2011


Abstract
To determine if corporate social responsibility (CSR) and corporate political activity are
economic substitutes or economic complements, I assemble and analyze the largest
dataset possible from existing data sources incorporating both types of non-market
behavior. Examining the joint distribution of an index of firms CSR behavior and an
indicator of whether or not firms lobby reveals that firms at both the positive and the
negative extremes of social responsibility are more likely to have been politically active.
Regressing the CSR index and a measure of lobbying intensity, individually, on Tobins
Q allows me to test whether CSR and corporate political activity separately enhance
firms value; regressing an interaction between the CSR index and the measure of
lobbying intensity on Tobins Q, allows me to test whether they play complementary
roles in enhancing firms value. Higher CSR ratings, more intensive lobbying, and the
interaction between the CSR rating and lobbying intensity all appear to increase value
when comparing firms; however, when each firm is studied over time, only the
interaction between CSR rating and lobbying intensity appear to increase firm value.
Taken together this suggests that firms CSR positions work as an economic complement
to its political activity rather than a substitutejointly the two types of non-market
behavior increase a firms value, while independently each activity is more difficult to
reconcile and perhaps may simply be symptomatic of some other inherently unobservable
firm-fixed characteristic such as good management. Illustrative cases round-out the
large dataset analysis.
Keywords: Non-Market Strategy, Corporate Social Responsibility, Corporate Political
Activity, Lobbying, Financial Performance, Substitutes, Complements
1

1 Introduction
Are corporate social responsibility (CSR) and corporate political activity
substitutes or complements? The simplistic, popular answer to this question is that they
are substitutes, since it is easy to classify firms that engage in CSR as being good and
equally easy to classify firms that attempt to exert political influence as being evil; the
reality, however, is likely to be more complex. Despite the importance of untangling this
relationshipwhich potentially has major implications for our understanding of both
CSR and corporate political activityscarce resources have been devoted to it to date.
Nevertheless, Lyon and Maxwell (2008) have called for exactly this type of research,
suggesting that corporate political activities need to be incorporated into an overarching
framework for CSR.
For consumers, we think of substitutes as being goods where an individual derives
the same value from picking some fixed quantity of one good versus another good (e.g.
wearing a red shirt or wearing a blue shirt gives an individual the same utility) and
complements as goods where consumers derive the most value from consuming both
goods simultaneously in appropriate proportions (e.g. left shoes and right shoes only give
consumers utility when consumed in equal proportions). In the case of CSR and
corporate political activity, we can think of these as distinct non-market actions firms
may pursue to manage their external business environment; however, the relationship
between the two types of non-market strategies is less clear than that between red shirts
and blue shirts or that between left shoes and right shoes. Does CSR create more value
2

for firms when done by itself or when coupled with an appropriate, complementary,
corporate political stance?
We could imagine a manager whose only concern is increasing the value of his
business seeing CSR and lobbying as substitutes and making a choice between one or the
other: e.g. he could choose (i) to run a firm that derives its profits from choosing a
cheaper production process that requires heavy pollution (social irresponsibility) and
lobbying to protect his ability to pollute; or, he could choose (ii) to run a firm that derives
its profits from selling the same good using a more expensive green production
technology and hoping to sell it to consumers who appreciate and are willing to pay a
premium for his efforts to be good, as in Bagnoli and Watts (2003) who argue that
firms compete for socially responsible consumers.
1
Alternatively, we could imagine a
manager who is more strategic in his decision-making and sees CSR and lobbying as
complements: e.g. he could pursue good CSR by developing a (more costly) green
technology and attempt to gain value from being at the top end of the CSR spectrum by
lobbying to push the regulatory environment in a direction that benefits his ownership of
a proprietary socially responsible technology at the expense of his competitors.
2
Which
of these alternative structures for non-market activity creates the most valuable firm?
The purpose of this paper is to determine whether or not CSR and corporate
political activity are substitutes or complements. It achieves this goal by merging well-
known datasets on CSR and firms political activity that to date have only been examined

1
Fisman, Elfenbein, and McManus (2010) find a similar result when they show that consumers are willing
to spend more when goods are linked to charitable giving, at least on eBay.
2
In the real world, we see this with companies like Toyota which own the green Prius hybrid technology
pushing for higher global fuel economy standards that all manufacturers must meet, rather than percentage
increases in average fuel economy of each manufacturer's fleet--the regulatory measure preferred by
manufacturers of less socially responsible cars that emit more pollutants.
3

separatelyand analyzing them jointly. First, it examines the peculiarities of the joint
empirical distribution of firms lobbying behavior and firms CSR; then it tests how CSR
and lobbying behavior, individually and jointly, impact firms valuations. This research
reveals that (i) firms at both negative and positive extremes of a CSR index are more
likely to have lobbied than firms that display more typical levels of socially responsible
behavior, that (ii) both CSR and lobbying, individual and jointly, explain higher financial
valuations when comparing firms; and that (iii) more intensive CSR and lobbying work
as complements when examining individual firms over time since their interaction
continues to explain higher valuations, however, more intensive CSR and lobbying
efforts alone may lead to lower valuations within a single firm over time.
1.1 Literature Review
Past researchers have studied questions related to CSR and financial performance
and corporate political activity and financial performance independently. They have not
considered empirically the possibility that CSR and corporate political activity may be
related and that good managers may choose to engage in both types of non-market
strategies. Consequently, prior literature has not considered the joint effects of corporate
political influence and CSR on firms financial valuations.
The only consensus that has emerged from the separate lines of research
regressing measures of CSR and of corporate political influence on measures of firms
financial performance is that while possible to document the value of either CSR or
lobbying between firms that it is harder to document eithers value within firms, when
controlling for persistent firm-fixed factors. One explanation for why the effects
disappear within firms is that good CSR or engaging in political activity may simply be
4

symptomatic of good management which is an inherently difficult to measure and,
plausibly, firm-fixed characteristic. Moreover, to date no study has looked at data on
both CSR and corporate political activity simultaneously despite some suggestions to
investigate the potential relationship between the two types of non-market behavior
both of which may be the result of good management.
CSR and Financial Performance
Before CSR was at the forefront of popular media attention,
3
the Nobel prize-
winning economist Milton Freidman (1970) famously quipped that the only social
responsibility of business is to increase its profits suggesting that there should be no
link between firms CSR initiatives and their financial performance. Freidman (1970)
went on to suggest that if there is any relationship, CSR initiatives should be a drag on
firm performance as they can only be the result of managerial malfeasance. Griffin and
Mahon (1997) and Margolis, Elfenbein, and Walsh (2009) provide extensive literature
reviews on the academic debate Friedmans comment sparked, chronicling a large
number of studies that come to divergent conclusions about CSRs effect on firms
financial performancesome finding a negative effect, others an inconclusive effect, and
yet others a positive effect. I highlight only a few key studies and their similarities.
Leading business strategy scholars, such as Porter and Kramer (2002), have
suggested that firms can benefit from CSR efforts as existing views of the firm fail to
take into account managing relationships with all stakeholders, which is precisely where
CSR may provide firms a competitive advantage. This Organizational Theory View of

3
A simple search of Google News Trends shows that reporting on the topic of CSR took off in the early
2000s: http://www.google.com/archivesearch?q=corporate+social+responsibility&btnG=Search+Archives
5

CSR tends to focus all stakeholders rather than just shareholders alone; between firm
studies tend to be used to support the view. Waddock and Graves (1997a) run a test
comparing different firms that indicates higher CSR scores predict better financial
performance. In separate research, Waddock and Graves (1997b) suggest that one reason
they may find the earlier positive relationship between CSR and financial performance
may be that firms with higher quality management perform better at CSR. Hillman and
Keim (2001) find support for the higher quality management argument when they show
that managers who pay attention to all stakeholders on social fronts are rewarded by
shareholders when comparing firms. Orlitzky, Schmidt, and Rynes (2003) conduct a
meta-analysis of studies comparing firms, concluding that in aggregate better CSR has a
positive effect of firms financial performance.
In critical re-evaluations of the work showing positive effects of CSR on firms
financial performance between firms, several more recent studies find that the positive
effects disappear in tests examining single firms over time (within firm tests), producing
results more consistent with Friedmans (1970) early predictions and the Economic
View of CSR. In particular, Moon (2007) finds that most prior research really just
captured unobserved heterogeneity specific to firms and that once these are controlled
for, CSR actually has a negative short-run effect on firms valuations. In a similar vein,
Baron (2009) constructs a theory which suggests that in equilibrium there should be no
within firm effects to being stronger along observable dimensions of corporate social
performance since firms choose to engage in such behavior only when pressured to do so
by non-market stakeholders in their business environment. Baron, Harajoto, and J o
6

(2009) conduct a three-stage least-squares empirical test that largely supports Barons
(2009) theory.
Corporate Political Activity and Financial Performance
Moving to the literature on corporate political activitys effect on firms aggregate
financial performance, the debate follows a similar pattern: it typically finds a positive
effect between firms, but a negative or inconclusive effect within firms or when otherwise
controlling for managerial qualities. In a recent study, Chen, Parsley, and Yang (2010)
show that portfolios composed of firms that lobby more intensely outperformed
portfolios of those that lobby less intensely; they caution, however, that simply spending
the most on lobbying does not necessarily lead to better financial performance as their
test is one that compares different firms, rather than examining single firms over time.
Agrawal and Knoeber (1999) find negative relationships between the intensity of various
measures firms corporate political activity and their financial performance as measured
by Tobins Q in the US context when controlling for fixed characteristics of the
management and governance of firms. The Agrawal and Knoeber (1999) result appears
to hold in other contexts as well: Claessens, Feijen, and Laeven (2008) find that firms
who make larger campaign contributions in Brazil have a lower Tobins Q, controlling
for firm fixed factors; and, Wei, Xie, and Zhang (2005) find that more politically
influential firms in China also have a lower Tobins Q.
2 Assembling a Dataset on CSR and Corporate Political Activity
To achieve this papers purpose, I assemble the most comprehensive dataset
possible based on available CSR and lobbying data. This allows me to begin answering
7

whether the two types of non-market strategies are substitutes or complements. My
dataset is an unbalanced panel covering US firms for the years 1998 through 2005 and
contains at most 3,350 firms in the cross-section. To construct it, I merged together data
that appears in (i) the most complete database available on CSR, (ii) public records on
firms lobbying expenditures, and (iii) firms accounting statements.
2.1 CSR Data from KLD
The CSR data comes from Kinder, Lydenberg, Domini Research & Analytics
(KLD) and their KLD STATs dataset. This is the most comprehensive and consequently
the most widely used CSR dataset for academic research.
4
The sample of firms with
KLD data available is what limits the cross-section of firms in my sample; KLD scores
are available primarily for the largest firms by market capitalization.
5

KLD codes directly observable CSR attributes in 7 issue areascorporate
governance, community engagement, diversity, employee relations, environment,
humanitarian efforts, and product qualitiesas either CSR strength or concern dummy
variables. More details on what the attributes are within these issue areas and how the
data are coded is available in the appendix. As in prior academic research using the KLD
data, I sum all strength indicators and subtract all the concern indicators to create a KLD
Index variable.
6
Higher and positive KLD Index scores indicate stronger aggregate CSR

4
For example, the KLD data is used by, among others: Waddock and Graves (1997); Hillman and Keim
(2001); Moon (2007); and, Baron, Harajoto, and J o (2009).
5
In addition to using market capitalization as a screen for which firms to include in its sample, KLD also
includes some additional firms based on a priori expectations that they are good at CSR; however, these
firms are easily identifiable as being part of the Domini 400 Social Index firms and hence excludable in
robustness checks. My primary results hold even when excluding Domini 400 firms that would not
otherwise be in my sample; more on this follows in a robustness section.
6
Unfortunately there is no theory to guide any other kind of aggregation of the data. (Hillman and Keim,
2001) The problem with this method of index construction is that it implicitly gives equal weight to each
8

records; lower and negative KLD Index scores indicate aggregate social irresponsibility.
A histogram of the KLD Index indicates that firms CSR levels tend to follow a normal
distribution with a mean near zero. Summary statistics follow in Table 1.
Chatterji, Levine, and Toffel (2009) examined the underlying integrity of the
KLD Data. They find that while it is a reasonable proxy for some types of CSR activity,
it is a noisy measure that both understates and overstates firms CSR levels.
7

2.2 Lobbying from Public Records
The lobbying data I use comes from legally required public disclosures of firms
lobbying expenditures.
8
It comes from Richter, Timmons, and Samphantharak (2009)
who coded the Center for Responsive Politics cleaned public records data such that it
can be merged into other datasets containing additional information on firms, like
COMPUSTAT for financial accounting data. The lobbying data reliably covers the
years 1998 through 2005, which limits the time-dimension of my dataset. It is the best
measure of firms corporate political activity available as firms spend an order of
magnitude more on lobbying than on (highly correlated) campaign contributions.
9

(Milyo, Primo & Groseclose, 2000; Ansolabehere, Snyder, & Tripathi, 2002)
From this dataset, I will use two primary variables based on lobbying disclosures
for my analysis. The first of these is a dummy variable that takes on a value of 1 if firms

KLD issue, when in reality there is no reason to believe that being a heavy polluter (a KLD concern) should
be equally offset by having a minority CEO (a KLD strength).
7
Consequently, Chatterji, Levine, and Toffel (2009) advocate using more detailed data when it is available
on specific issues like firms pollution level from public records; however, they provide little guidance on
what may be a better measure across all CSR issues.
8
Firms have been legally required to report all lobbying expenditures in the US since the Lobbying
Disclosure Act of 1995.
9
Furthermore, existing research has documented that campaign contributions have little impact on the
legislative process and may merely be a form of corporate consumption. (Ansolabehere, de Figueiredo,
and Snyder , 2003)
9

lobby and a value of 0 otherwise. Summary statistics included in Table 1 reveal that only
about 28% of the firms in the sample actually engage in any sort of formal lobbying.
10

For this study, I have also created a measure of firms lobbying intensity that is the
percentage of a firms total (accounting) assets spent on lobbying. The advantage of this
variable is that it is defined in a manner that makes it independent of scale (i.e. is
comparable across firms regardless of their size), which also makes it appropriate to
include in Tobins Q valuation regressions.

2.3 Tobins Q (Dependent Variable) and Controls from COMPUSTAT
I will use Tobins Q as the dependent variable in a regression-based test of
whether corporate political activity and CSR work as substitutes or complements, as
Tobins Q is the most-widely used measure in studies of both CSRs effect (on financial

10
28% of the firms in the sample lobbying is a high percentage when compared to the fraction of all active
firms in the COMPUSTAT database which lobby (around 10%). The reason that more firms in the sample
I use for this research lobby is that firm size is a good predictor of whether or not firms lobbyand the
sample included here is limited to those firms which KLD rates on CSR dimensions, a sample that includes
primarily the largest firms in the US.
TABLE 1 - Summary Statistics for Key Variables
Mean Median Std. Dev Min Max
KLD Index -0.19 0.00 2.12 -11.00 11.00
KLD Strengths 1.43 1.00 1.98 0.00 18.00
KLD Concerns 1.61 1.00 1.84 0.00 16.00
Mean Median Std. Dev Min Max
If Lobby (Dummy) 0.28 0.00 0.45 0.00 1.00
Lobbying Intesity 0.0043 0.00 0.0224 0.00 0.99
Lobbying Variables
CSR Variables
10

performance) and corporate political activitys effect (on financial performance).
11
I
construct the Tobins Q variable from COMPUSTAT, such that it equals the market
value of the firm divided by the book value of the firm. When the variable takes on
values greater than one, the market perceives the combination of tangible and intangible
resources the firm has assembled as being worth more than the replacement value of the
firm; hence, higher values of Tobins Q indicate superior financial performance of the
firm. Furthermore, a managers goal should be to maximize his Tobins Q value as this
indicates that he is using the firms resources in the best possible manner.
Studies using Tobins Q as the dependent variable typically include a set of
control variables related to other observable characteristics of the firm that are included
on their financial statements. I take data on the most commonly incorporated control
variableslog(total assets), leverage, capital intensity, R&D intensity
12
, and
log(employees)from COMPUSTAT.
13

3 The Joint Distribution of CSR and Lobbying
As a first step in my empirical attempts to discern whether social responsibility
and lobbying are substitutes or complements, I examine the joint empirical distributions
of the attributes. This goes beyond the summary statistics of the independent
distributions of firms lobbying activity and CSR levels provided in Table 1.

11
For example, in the CSR literature Tobins Q is used by Moon (2007) and Baron, Harajoto, and J o (2009)
among others, and in the corporate political activity literature it is used by Agrawal and Knoeber (1999),
Claessens, Feijen, and Laeven (2008), and Wei, Xie and Zhang (2005) among others.
12
R&D intensity is particular important to include according to a study by McWilliams and Siegl (2000),
who claim models that do not include it are misspecified.
13
Leverage is defined as Total Debt divided by Total Assets; Capital Intensity is defined as Property, Plant
and Equipment (Net) divided by Total Assets; and, R&D Intensity is defined as research and development
expenditures divided by Total Assets, using a value of 0 where research and development expenditures has
an N/A observation in COMPUSTAT.
11

If corporate political activity and CSR were substitutes, then we would expect to
find that only the most socially irresponsible firms are likely to lobby, since these firms
have chosen to ignore CSR activity in favor of engaging with political actors. If
corporate political activity and CSR were complements, then we would expect firms
lobbying behavior to vary in some other systematic way with their CSR behavior and
perhaps firms having the best CSR records would be more likely to engage in corporate
political activity. Of course, it is also possible that there is no relationship between
corporate political activity and CSR, in which case the distribution of CSR activity
should look identical for firms regardless of their lobbying (political activity) status.
3.1 Firms that Lobby have a KLD Index Distribution with Fatter Tails
Figure 2 shows overlaid histograms of the density of KLD scores (i) for firms that
lobby and (ii) for those firms that do not lobby.
14
The first moment, or mean, of both
distributions appears the same, but the second moment, or variance, appears to differ.
The graph shows that firms at both extremes of social responsibility are more likely to
lobby than firms with more typical levels of CSR: the most socially irresponsible and the
most socially responsible firms are the ones that lobby. While the finding that the most
socially irresponsible firms lobby could by itself suggest a substitute-like relationship, the
parallel finding that the most socially responsible firms also lobby is more suggestive of a
complementary relationship.

14
Figure A1 in the Appendix shows the Kernel Density functions of the KLD index by lobbying status.
12

Figure 1 Histograms of KLD Scores, by Lobbying Status

To test whether the two distributions shown in Figure 1 are different more
formally, I examine their discrete joint empirical distributions in Table 2. A Chi-squared
test indicates a very high likelihood that firms that lobby have a different KLD index
distribution with fatter tails than firms that do not lobby, as the p-value is less than 0.000.

0.00
0.05
0.10
0.15
0.20
0.25
0.30
-11-10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11
D
e
n
s
i
t
y
Sum of KLD Strengths/Concerns
Histograms of KLD Scores, by Lobbying Status
Firms that DO NOT Lobby
Firms that DO Lobby
TABLE 2 - Empirical Distribution Tests
KLD Strengths minus Weaknesses
C
o
u
n
t
s -11 -10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11 Tot.
0 1 1 1 0 5 19 40 113 290 855 1762 2301 1224 487 253 125 43 24 11 2 0 3 0 7560
1 1 2 7 19 34 52 78 153 200 328 500 495 352 262 172 98 60 41 30 15 11 3 4 2917
T
o
t
.
2 3 8 19 39 71 118 266 490 1183 2262 2796 1576 749 425 223 103 65 41 17 11 6 4 10477
Value p-value
KLD Strengths minus Weaknesses
L
o
b
b
y
i
n
g

D
u
m
m
y
C
o
u
n
t
s
Test Statistics
This table presents the empirical joint distribution counts of the number of firms that fall into certain
KLD Score and Lobbying categories in the full dataset used in the paper. It also runs tests on the
categorical densities to show that the distribution for firms that lobbying versus those that do not are
statistically distinguishable.
937.127 0.000 Pearson Chi-Squared
13

Taken together it is clear that the CSR behavior of firms that lobby is different
than that of firms that do not lobby. Given that the distribution for firms that do lobby is
fatter at both positive and negative tails, we can preliminarily deduce that lobbying and
social responsibility are complements, since their distributions vary together in a
systematic way.
3.2 KLD Index vs. Lobbying Intensity
Another way to examine the joint empirical distribution of CSR and corporate
political activity is to look at a scatterplot of KLD Index scores versus the measure of
lobbying intensity. This appears in Figure 2. It shows that despite firms at the extremes
of social responsibility being more likely to lobby (as shown in Figure 1), firms at the
extremes of social responsibility are less likely to lobby as intensively as firms in the
middle of the social responsibility distribution.
Figure 2 Scatterplot of Lobbying Intensity vs. KLD Score

Another way to think about the relationship between substitutes and complements
.00
.05
.10
.15
.20
.25
.30
-12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12
Total Number of KLD Strengths minus Concerns
P
e
r
c
e
n
t
a
g
e

o
f

A
s
s
e
t
s

S
p
e
n
t

o
n

L
o
b
b
y
i
n
g
Scatterplot of Lobbying Expenditure (% of Assets) by KLD Score
14

is to think about what the shape of their indifference curves (or isoquants) should look
like. If two goods are substitutes, their indifference curve should be straight lines at an
oblique angle with respect to the origin (as the two inputs should have a constant
marginal rate of substitution); if two goods are complements their indifference curves
should be convex with respect to the origin (as their marginal rate of substitution should
vary with the levels of the two inputs).
15
Plotting firms lobbying intensity versus their
KLD index (which are the axes on an indifference curve/isoquant graph) in Figure 2
shows that at the upper bounds firms use of CSR and lobbying are convex towards the
origin, suggesting that they may be complementary inputs managers can use together to
increase the value of their firms. The problem with treating this graph as if it were an
indifference curve/isoquant graph, however, is that the utility/output of each firm is not
held at constant levels across all observations as they should be in a formal test. We can
include controls to hold other factors influencing firms valuations constant and
approximate the marginal rate of substitution between CSR and corporate political
activity in a regression based test I run in the next section.
4 A Test Linking CSR and Lobbying to Financial Performance
As alluded to above, one simple way to test if any two economic variables are
substitutes or complements involves calculating their marginal rate of substitution. This
test works because whenever two economic variables are substitutes their marginal rate
of substitution is constant and whenever they are complements their marginal rate of
substitution is a function of the underlying variables.

15
See Appendix Figure A2 for the case of Substitutes and Figure A3 for the case of Complements.
15

Using this logic, we can test whether CSR and corporate political activity are
substitutes or complements if we can estimate how they enter into a firms valuation
since this is a firms equivalent to a utility function which we would need to differentiate
with respect to our variables of interest to calculate their marginal rate of substitution.
We can do this since we have data on firms valuations, as measured by Tobins Q, and
believe that their valuations are a function of CSR and corporate political activity among
other factors. A firms financial valuation as a function of non-market activity variables
can be estimated by running regressions of the form:
Iobin
i
s = CSR
t
+z Iobby
t
+ n CSR
t
Iobby
t
+ y X
t
+ o + e
where CSR
t
represents the KLD Index variable; Iobby
t
represents the Lobbying
Intensity variable; X
t
represents other control variables common in regressions on
Tobins Q; and, the constant/fixed-effects variable o varies depending upon whether we
want the test to be between or within firms.
16

We can then take the coefficient estimates from the above regression and use
these to approximate the marginal rate of substitution between CSR and corporate
political activity, which allows us to determine whether or not CSR and corporate
political activity are substitutes or complements. If the marginal rate of substitution
between CSR and political activity is a constant then the two inputs to a firms valuation
are substitutes. If the marginal rate of substitution between CSR and political activity is a
function of those inputs to a firms valuation then the two variables are complements.

16
This regression is appropriate if we believe that CSR and lobbying efforts are not functions of financial
markets contemporaneous valuation of a firm.; otherwise there would be a potentially endogeneity issue.
This seems reasonable unless we believe that managers change their current CSR behavior and lobby
efforts in response to the firms current financial market valuations rather than because of a longer term
(potentially strategic) commitment to socially responsibility or strategic political activity.
16

From the regression above, we calculate a firms marginal rate of substitution as:
HRS
CSR,Lobbng
=
o|Iobin
i
s ]
oCSR
o|Iobin
i
s ]
oIobby
=
+ nIobby
z +nCSR

Hence, if we estimate the coefficient on the interaction between CSR and corporate
political activity (n) to be zero, HRS
CSR,Lobbng
will be a constant indicating that CSR
and corporate political activity are substitute inputs for managers. Alternatively, if we
estimate that the coefficient on the interaction between CSR and corporate political
activity (n) has a non-zero value, then HRS
CSR,Lobbng
will be a function of CSR and
corporate political activity, indicating that the two types of non-market strategies are
complements.
4.1 Estimates Between Firms Show Value of Both CSR and Lobbying
and Suggest a Complementary Relationship
As a first test of whether CSR and lobbying are complements or substitutes using
Tobins Q regressions and the framework outlined above, I estimate between regressions
that include period, but not firm fixed-effects. I estimate the regressions that compare
different firms first to be consistent with the Organizational Theory View of CSR and
the lobbying literatures that finds a positive effect of CSR and lobbying independently on
firms financial valuations when comparing different firms. In the next sub-section, I
will run regressions that look within individual firms over time and that may provide a
more econometrically sound test, as they control for unobserved firm-specific
heterogeneity such as managerial quality which may be influencing decisions related to
the levels of firms CSR efforts and the intensity of their political activity.
17

Hence, as a first test, I estimate variations on the between regression:
Iobin
i
s = CSR
t
+ z Iobby
t
+n CSR
t
Iobby
t
+ y X
t
+o
t
+ e
We should expect to find a positive and significant coefficient () on the level of CSR
and a positive and significant coefficient (z) on the level of lobbying if each
independently increases the valuation of firmswhich would be consistent with prior
research that finds that CSR and lobbying increase firms Tobins Q values when
comparing firms. As outlined in the regression framework section above, we should
expect to find a positive and significant coefficient (n) on the interaction between the
level of CSR and lobbying if the two activities are complements between firms and we
should expect to find a statistically insignificant coefficient (n) on the interaction term if
the two non-market activities are substitutes between firms. The results from my
estimates appear in Table 3.
The results in Table 3 show positive and significant values on the coefficients for
CSR (), corporate political activity (z), and for the interaction between the two types of
non-market behavior (n). The results for CSR () and for corporate political activity (z)
are consistent with the Organizational Theory View of CSR and with past researchers
results showing a positive effect corporate political activity on firms financial
performance when comparing firms. The result for the interaction coefficient (n),
however, is what we are most interested in, since the purpose of running these regressions
was to get at whether or not CSR and corporate political activity are substitutes or
complements; its positive and significant value suggests once again that CSR and
corporate political activity are complements.
18


Despite the results, these between firm regressions are subject to the critique
about unobserved firm-level heterogeneity that proponents of the within firm regressions
offer. The critique suggests that I might find the above results because of unobservable
managerial quality such that better managers choose higher CSR levels and higher
political activity levels, whereas worse managers do not pursue the non-market strategies.
Hence, if I included firm fixed-effects to control for persistent attributes of managerial
quality that might be causing the levels of CSR and lobbying intensity that I am
observing, my positive results could disappear, as higher managerial quality would also
cause higher levels of Tobins Q for other reasons.
TABLE 3 - Between Estimates of Influence of CSR and Lobbying on Valuation
Dependent Variable:
KLD Score 0.054*** 0.055*** 0.035***
(0.008) (0.008) (0.008)
Lobbying (% of Assets) 4.424*** 4.574*** 6.927***
(0.716) (0.715) (0.776)
KLD * Lobbying (% of Assets) 3.874***
(0.505)
log(Assets) -0.290*** -0.286*** -0.287*** -0.287***
(0.014) (0.014) (0.014) (0.014)
Leverage -0.223** -0.278*** -0.223** -0.225**
(0.091) (0.091) (0.091) (0.091)
Capital Intensity -0.274*** -0.330*** -0.268*** -0.286***
(0.079) (0.079) (0.079) (0.079)
R&D Intensity 7.684*** 7.587*** 7.592*** 7.457***
(0.236) (0.237) (0.236) (0.236)
log(Employees) 0.123*** 0.117*** 0.120*** 0.118***
(0.013) (0.013) (0.013) (0.013)
Firm Fixed Effects No No No No
Period Fixed Effects Yes Yes Yes Yes
Number of Obs. 9869 9869 9869 9869
R Squared 0.201 0.200 0.204 0.209
Tobins Q
19

4.2 Estimates Within Firms Reveal that the Complementary Relationship
between CSR and Lobbying is Robust
If in within firm tests I still find a positive and significant interaction effect (n)
between CSR and lobbying and if managerial decisions are persistent, then my primary
result that CSR and corporate political activity are complementary is robust.
Here I run such a test, estimating variations on the within regression:
Iobin
i
s = CSR
t
+ z Iobby
t
+ n CSR
t
Iobby
t
+ y X
t
+ o

+ o
t
+ e
The primary difference between the within firms estimates presented here and the
between firms estimates presented in the prior table are that the within firms estimates
control for time-persistent unobservable characteristics by including firm dummy-
variables (o

) in the estimation. Essentially adding the firm dummy-variables (o

) to the
estimation should control for unobservable managerial talent that may be causing firms to
engage in CSR or corporate political activity. This is a test that looks at what happens
inside individual firms over time rather than when comparing different firms as the
regressions did in the last sub-section.
We should expect to find a negative and/or insignificant coefficient () on the
level of CSR and a negative and/or significant coefficient (z) on the level of lobbying if
each independently is a drag on firms valuations or has no measurable effectwhich
would be consistent with prior researchers within firm studies that suggest unobserved
managerial quality drives between firm studies results. As mentioned above, we should
expect to find a positive and significant coefficient (n) on the interaction between the
level of CSR and lobbying if the two activities are complements when examining a single
firm over time if unobserved managerial quality did not drive the between firm result for
20

this coefficient. Otherwise a statistically insignificant coefficient (n) on the interaction
term would indicate that inside an individual firm over time the two non-market activities
may be substitutes. The results from my estimates appear in Table 4.

Consistent with prior researchers within firm tests and the Economic View of
CSR, the results in Table 4 show negative and/or insignificant values on the coefficients
for CSR () and for corporate political activity (z)suggesting that firms superior social
performance and the intensity of firms political activity may in fact be symptomatic of
higher quality management, or some other persistent firm-fixed characteristic, and have
no real direct effect on their financial performance. Nevertheless, the results in Column 4
of Table 4 find a positive and significant coefficient on the interaction between firms
TABLE 4 - Within Estimates of Influence of CSR and Lobbying on Valuation
Dependent Variable:
KLD Score -0.013 -0.013 -0.030***
(0.011) (0.011) (0.011)
Lobbying (% of Assets) -2.572** -2.549** -0.300
(1.127) (1.127) (1.192)
KLD * Lobbying (% of Assets) 3.354**
(0.589)
log(Assets) -1.119*** -1.125*** -1.126*** -1.107***
(0.074) (0.074) (0.074) (0.074)
Leverage 0.169 0.166 0.164 0.163
(0.158) (0.158) (0.158) (0.158)
Capital Intensity -2.069*** -2.066*** -2.066*** -2.041***
(0.323) (0.323) (0.323) (0.322)
R&D Intensity 3.734*** 3.796*** 3.779*** 3.701***
(0.535) (0.535) (0.535) (0.534)
log(Employees) 0.217*** 0.217*** 0.217*** 0.222***
(0.075) (0.075) (0.075) (0.075)
Firm Fixed Effects Yes Yes Yes Yes
Period Fixed Effects Yes Yes Yes Yes
Number of Obs. 9869 9869 9869 9869
R Squared 0.776 0.776 0.776 0.777
Tobins Q
21

CSR level and lobbying (n)which yet again suggests that CSR and corporate political
activity are complements. Moreover, it suggests that even when controlling for
unobservable managerial quality, CSR may indeed improve firms financial performance,
but only if it is coupled with the appropriate corporate political activityallowing the
firm to overcome the extra costs that CSR efforts alone impose (as suggested by the
negative coefficient ).
If we took the results in Column 4 of Table 4 and held the left hand side
(valuation level) variable constant, and used the point estimates for the coefficients on
CSR (), corporate political activity (z), and their interaction (n) to draw a graph, with
axes representing lobbying intensity and the KLD index, they would generate
indifference curves that are convex with respect to the origin; this result would be
consistent (i) with the shape of the scatter plot of the data in Figure 2, (ii) with the
marginal rate of substitution varying depending upon the level of CSR or the intensity of
corporate political activity, and most importantly (iii) with the notion that CSR and
corporate political activity are complementary inputs for firms that when used together
can raise their valuations despite the negative independent effects of CSR and corporate
political activity.
The result that CSR alone may decrease firms valuations is consistent with the
oft-quoted Milton Friedman (1970) statement that the only social responsibility of
business is to increase its profits. The result that CSR can become profitable when
taking into account firms lobbying behavior, however, may also be consistent with
Friedmans (1970) argument, given that one of the conditions he put on making as much
money as possible was while conforming to the basic rules of society (those embodied
22

in law). To the extent that firms can lobby successfully to alter laws to yield higher
profits by institutionally requiring others to match their socially responsible behavior or
to lose out on business opportunities, Freidman would not have been surprised by my
results. Nevertheless, my results call into question the notion that firms who benefit from
CSR are really doing well by doing good as many proponents of the Organizational
Theory View of CSR suggestor if the firms that benefit the most from CSR are only
doing well by coupling their good with a dose of evil in the form of corporate
political activity.
One reason we may find the result that CSR and corporate political activity are
complements could be that the way firms profit is from the use of social activity as a
competitive weapon potentially giving them a leg up in their lobbying efforts (Devinney
2009). If so this may be a classic case of when regulation is acquired by industry and is
designed and operated primarily for its benefit, otherwise known as regulatory capture.
(Stigler 1971) Traditionally, regulatory capture has been viewed as something that can
be very costly to society given its distributional consequences (Dal B, 2006); however,
if certain firms that are exceptional at some aspect of CSR are more able to capture
regulators and more able to demand regulation that will be good for society, such as
reducing aggregate pollution, the normative consequences are less clear.
4.3 Robustness Checks
I address several possible concerns about robustness of the prior results in this
sub-section. The key points from Table 3 and Table 4 continue to hold after these
robustness tests: when comparing firms better CSR, more intensive lobbying, and the
interaction between better CSR and more intensive lobbying explain higher Tobins Q
23

values; however, when examining individual firms over time only the interaction between
better CSR and more intensive lobbying can explain higher financial valuations and, if
anything, better CSR by itself may reduce firms financial valuations. Taken together my
results remain highly indicative of a complementary relationship between CSR and
corporate political activity.
Checking for Sampling Issues
There are several potential sampling issues that could be driving my primary
results. To overcome sampling-related concerns, I test to see if my results hold up when
the sample is altered to correct for irregularities; they do when I re-run regressions on
different sub-samples of the dataset designed to test their robustness. The sampling
issues include: potential over-representation of socially responsible firms, outliers along
the lobbying intensity dimension, and outliers at the extremes of CSR where there are
only a few observations.
One well known issue related to the cross-section of firms on which KLD collects
CSR data is that the sample likely over-represents firms that are CSR leaders, as a
fraction of the firms included in the dataset, labeled as Domini 400 Social Index firms,
were selected because they were believed a priori to be among the most socially
responsible firms in the US. The rest of the firms were chosen to be in the sample based
on having large market capitalizations. As such I create a subsample of the firms that
excludes the Domini 400 Social Index firms that would not have been included in the
pool of firms if it were not for their large market capitalizations. When I re-run my
regressions in Tables 3 and 4 above, on a sub-sample excluding Domini 400 firms that
would not be in the sample otherwise, the results remain substantively the same.
24

Another sampling concern I tested was sensitivity to outliers. I re-ran the
regressions in Table 3 and Table 4, excluding the extreme outliers on both lobbying and
CSR dimensions from the sample. When I exclude both lobbying and CSR extreme
outliers, my primary result that lobbying and CSR are complements holds up; this
remains true whether excluding just CSR outliers, just lobbying outliers, or both.
17
The
one difference I find occurs when I exclude the most extreme outliers on the lobbying
dimension: I find that in the firm fixed effects (or within) regressions, that the negative
lobbying intensity coefficient becomes statistically insignificant. This suggests that a
firms lobbying intensity alone has no effect on a firms Tobins Q; interactions between
lobbying intensity and CSR levels nevertheless remain important because of their
complementary relationship.
Disaggregating KLD Strengths/Weaknesses
As another test of the robustness of the results, instead of using the total KLD
score as a measure of CSR, I disaggregate the measure into its positive (strengths) and
negative (concerns) components. Otherwise, the regressions are run as within regressions
as in Table 4. The results appear in Table 5.
Table 5 shows that unlike in the Table 4 results, having negative CSR or being
socially irresponsible (measured by KLD concerns rather than firms placement on an
aggregate index) does not increases firms valuations as suggested when the entire KLD
Index is used. Rather, the results in Table 5 suggest that the optimal point for most firms

17
For robustness I tried defining outliers in various ways; however, the simplest way, which was to use a
visual test of the distributions of the data. This led me to exclude firms with a lobbying intensity measure
greater than 0.3 as outliers along the lobbying dimension. It also led me to exclude firms with KLD Index
scores greater than 8 in absolute value as outliers along the CSR dimension.
25

to maximize their valuations, if lobbying intensity is held at its median value of zero, is
for firms to set their CSR level near their median value of zero as well.
We also learn from Table 5 that KLD concerns do not positively complement
firms lobbying efforts like KLD strengths do. Perhaps this is because the firms with
KLD concerns are lobbying for different reasonspotentially to cover up their
irresponsible actions rather than to institutionalize the competitive advantage their CSR
efforts may be giving them.

TABLE 5 - Within Estimates, Role of Good/Bad CSR and Lobbying on Valuation
Dependent Variable:
KLD Strengths -0.073*** -0.072*** -0.098***
(0.015) (0.015) (0.015)
KLD Concerns -0.040*** -0.040*** -0.027*
(0.014) (0.014) (0.014)
Lobbying (% of Assets) -2.572** -2.579** -2.501*
(1.127) (1.124) (1.387)
KLD Strengths * Lobbying (%) 5.057***
(0.817)
KLD Concerns * Lobbying (%) -2.432***
(0.660)
log(Assets) -1.102*** -1.125*** -1.108*** -1.076***
(0.074) (0.074) (0.074) (0.074)
Leverage 0.184 0.166 0.179 0.183
(0.158) (0.158) (0.158) (0.157)
Capital Intensity -2.061*** -2.066*** -2.059*** -2.045***
(0.322) (0.323) (0.332) (0.321)
R&D Intensity 3.775*** 3.796*** 3.821*** 3.737***
(0.533) (0.535) (0.534) (0.532)
log(Employees) 0.211*** 0.217*** 0.211*** 0.214***
(0.075) (0.075) (0.075) (0.075)
Firm Fixed Effects Yes Yes Yes Yes
Period Fixed Effects Yes Yes Yes Yes
Number of Obs. 9869 9869 9869 9869
R Squared 0.777 0.776 0.777 0.778
Tobins Q
26

5 Discussion: Illustrative Cases
While there are advantages to analyzing large datasets, over a purely qualitative
analysis focused on specific cases, there are also some shortcomings. Large dataset
analysis alone can obscure the story of what firms are actually doing on the ground; so
far, in this study, it is unclear how firms use their social responsibility positions (positive
or negative) as complements to their lobbying efforts. Given that there are multiple
dimensions of social responsibility/ irresponsibility and multiple issues on which firms
could lobby for policy change or for maintaining the policy status quounderstanding
how managers combine various non-market positions is particularly important.
In this section of the paper, I take the extra step to examine individual cases at the
extremes of the CSR and lobbying distributionshoping to see exactly how firms use
their social responsibility position as a strategic complement to their lobbying behavior.
At the negative extreme, Yum! Brands provides an example of how one firm
complements its relative social irresponsibility with its lobbying efforts by seeking to
maintain the policy/regulatory status quo. At the positive extreme, Hewlett-Packard
provides an example of a firm that leverages its relatively positive social responsibility
position in its lobbying efforts to push for policy changes that would allow them to
monetize their existing activities and raise their rivals costs.
5.1 Yum! Brands Complements Social Irresponsible Positions
with Lobbying Efforts aimed at Maintaining the Status Quo
Yum! Brands, which owns Taco Bell and KFC among other fast-food brands,
falls into the bottom 5% of firms on the social responsibility index most years in the
sample. According to KLD, Yum! Brands has particular weaknesses in: paying
27

executives and directors at unusually high rates; running into controversies related to
affirmative action; finding themselves at the center of other diversity disputes; being
relatively bad at controlling emissions of toxic chemicals; providing employees with poor
benefits packages; running into other disputes with employees about minimum wage pay
and failure to pay overtime; issues with practices in its supply chain; and, finally
concerns over the safety/quality of its products.
Yum! Brands appears to have lobbied in these areas of weakness in their social
responsibility position. Most of their legally-required lobbying disclosure reports show
that Yum! Brands focused on these weaknesses with respect to social issues, such as: on
the minimum wage, on animal rights issues of suppliers, and on environmental emissions.
Yum! Brands lobbying disclosure, however, leaves information about specific bills and
specific positions absent. The only hint of their actual public policy positions, rather than
simply the issues they lobby on, comes from their annual reports and congressional
testimony their officers make. Yum! Brands annual reports cite changes in the minimum
wage as a substantial risk to the company. Testimony by J onathan Blum, the head public
affairs officer at Yum! Brands, to the Senate J udiciary Committee in May 2004 indicates
that Yum! Brands is concerned about the business implications if Yum! Brands had to
source inputs from ethical suppliers who only use what PETA (People for the Ethical
Treatment of Animals) calls more humane ways to process live animals into food
products that if implemented, would cost our company [Yum!] over $50 Million.
In summary, Yum! Brands appears to have complemented its positions of relative
social irresponsibility with a lobbying strategy aimed at preserving the policy status
quowhere preserving the policy status quo would enable Yum! Brands keep input costs
28

down at the peril of various market and non-market stakeholders. By focusing on
maintaining the policy status quo in areas related to their operations, Yum! Brands
appears to have formulated a non-market strategy dependent on their ability to wring
value out of a market position that requires them to operate at the margins of government
regulation vis--vis social issues, making their business particularly sensitive to
tightening operations around social issues.
5.2 Hewlett-Packard Complements Socially Responsible Positions with
Lobbying Efforts advocating for Policy Change towards Firms Strengths
Hewlett-Packard, which is a multinational information technology services,
software, and hardware company, falls consistently into the top 5% of firms on the social
responsibility index. According to KLD, Hewlett-Packard has particular strengths in:
transparent reporting; charitable giving programs (within and outside of the US); having
employee volunteer programs; having internal programs that support diversity and
work/life balance; using clean energy among other environmentally proactive activities;
and, bringing innovative products to market that are good for consumers.
Consistent with the strengths in their social responsibility position, Hewlett-
Packard appears to have lobbied in the same areas: on improving environmental
standards/transparency; on electronics recycling; on government support for decreasing
the digital divide/ economic development; and on patent/trademark issues. Hewlett-
Packards congressional testimony, takes a decidedly different tone than that by Yum!
Brands; rather, than complaining about difficulties and costs of compliance with existing
regulations related to social issues, Hewlett-Packard advocates for policy changes and
supports congressional review of environmental standards, particularly around the firms
29

strengths. For example, a J une 2005, statement released by David Isaacs, Hewlett-
Packards Director of Government and Public Policy, lauded efforts by a subcommittee
of the US Senate Committee on Environment and Public works for its efforts to push for
new legislation in the area of Electronic Waste, suggesting ways that a bill under
consideration could leverage the capabilities and expertise of manufacturers to achieve
efficient and low cost opportunities for all customers while achieving environmentally
sound management of discarded IT products at the lowest possible cost, while
minimizing the role and burden on government.
In summary, Hewlett-Packard appears to have complemented its social
responsibility position with a lobbying strategy aimed at changing government policy in
ways that allow it to benefit from the companys existing social responsibility positions,
which were well in front of existing government regulation and policy at the time they
were initiated. By positioning themselves ahead of government regulation on social
issues, Hewlett-Packard appears to have been able to create sustainable value by lobbying
for government regulation that raised their rivals costs. On the Electronic Waste front,
Hewlett-Packard successfully advocated for taxing all manufacturers at the time of
electronics product sales for the cost of future recycling expenses; they were then able to
benefit from this by also advocating for government subsidies directed at electronic
product manufacturing firms that successfully recycled electronic products (whether the
company receiving the subsidy manufactured the original product or a competitor did).
At the time that Hewlett-Packard advocated for the policy changes, the company was
already in a position to benefit from the new policy, while their competitors were not as
well prepared.
30

6 Conclusion
In this research, I have shown that CSR and corporate political activity function as
economic complements rather than as economic substitutes. Specifically, I have shown
that while it is true that most socially irresponsible firms are more likely to have lobbied,
that it is also the case the most socially responsible firms are also more likely to have
lobbied. I have also shown that in regressions that compare different firms (between
tests), that lobbying intensity and CSR intensity both independently and jointly explain
why some firms have higher valuations than others. More importantly, however, I have
shown that in regressions that examine individual firms over time (within tests) that the
interaction between lobbying intensity and CSR quality explains higher valuations,
whereas CSR quality alone may lead to lower firm valuations. The result that the
interaction between CSR and corporate political activity remains positive and significant
in both between and within firm tests, unambiguously supports the hypothesis that the
two non-market strategies, CSR and corporate political activity, are complements.
My results bridge the findings between proponents of CSRwho build arguments
based on organizational stakeholder theories and who run between firms tests to find
empirical support that CSR increases firms valueand the results of critics of CSR
who build their arguments based on economic theories of shareholder wealth
maximization and who run within firm tests to find empirical support for the notion that
CSR does not enhance firm value and may actually destroy it. The reality is that both
the proponents of CSR and the critics of CSR have valid points; however, both have
overlooked the complementary relationship between CSR and corporate political activity.
When we add corporate political activity into the mix, we find that the proponents are
31

correct that CSR increases the value of the firm in some circumstances, despite the critics
also being correct that CSR by itself can decrease the value of the firm, since CSR only
adds value when complemented with the appropriate level of corporate political activity.
Moreover, my results have serious implications for our understanding of any
research on CSR or corporate political activity. If CSR and corporate political activity
are complementary activities pursued by firms, as this research has shown, we should no
longer consider the role of CSR or political activity alone without considering the role of
its complement, since doing so is likely to lead to biased results under most
circumstances. Researchers attempting to answer valuation-related questions on either
topic (CSR or corporate political activity) should ideally incorporate data on its
complement into the analysis. Unfortunately, doing so is often not realistic given data
availability constraints, in which case researchers should at least acknowledge how the
complementary relationship between CSR and corporate political activity may bias
results focused more narrowly on one of the two non-market strategies.
As a final thought, this research also suggests a greater need for researchers to
study cases of regulatory capture that while designed by industry primarily for its
benefit (Stigler 1971) may nevertheless promote positive social outcomes. Since CSR
and corporate political activity are complements, these should be precisely the cases in
which CSR is most profitable for firms.

32

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8 Appendix

TABLE A - KLD Attributes within Issue Areas
Strength Concern
Generous Giving Tax Disputes
Innovative Giving Investment Controversies
Support for Housing Negative Economic Impact
Indigenous Peoples Relations Strength Indigenous Peoples Relations Concern
Non-U.S. Charitable Giving Other
Volunteer Programs
Support for Education
Other Strength
Strength Concern
Limited Compensation High Compensation
Ownership Strength Ownership Concern
Transparency Strength Transparency Concern
Political Accountability Strength Political Accountability Concern
Other Strength Accounting Concern
Other Concern
Strength Concern
CEO Employee Discrimination
Promotion Non-Representation
Board of Directors Other Concern
Family Benefits
Women/Minority Contracting
Employment of the Disabled
Progressive Gay/Lesbian Policies
Other Strength
Strength Concern
Union Relations Strength Union Relations Concern
No Layoff Policy Health and Safety Concern
Cash Profit Sharing Workforce Reductions
Involvement Pension/Benefits Concern
Strong Retirement Benefits Other Concern
Health and Safety Strength
Other Strength
Strength Concern
Beneficial Products & Services Hazardous Waste
Pollution Prevention Regulatory Problems
Recycling Ozone Depleting Chemicals
Alternative Fuels Substantial Emissions
Other Strength Agricultural Chemicals
Climate Change Policy
Other Concern
Strength Concern
Indigenous Peoples Relations International Labor Concern
Labor Rights Strength Indigenous Peoples Relations
Other Strength Burma
Mexico
Other Concern
Strength Concern
Quality Product Safety
R&D/Innovation Marketing/Contracting Controversy
Benefits to Economically Disadvantaged Antitrust
Other Strength Other Concern
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35

Figure A1 Empirical Kernel Density Function of KLD Scores, by Lobbying Status

.00
.04
.08
.12
.16
.20
.24
-14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14
Sumof KLD Strengths/Concerns
...for Firms that do NOT Lobby
...for Firms that DO Lobby
D
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Distribution of KLD Scores by Lobbying Status
36

Figure A2 Illustration of Substitutes:
Indifference Curve Oblique to Origin and MRS Equals a Constant


Figure A3 Illustration of Complements:
Indifference Curve Convex to Origin and MRS a Function of A, B