Fisman, Ray, Heal, Geoffrey and Vinay Nair (2006) “A Model of Corporate Philanthropy”, Working Paper, Wharton School, University of Pennsylvania.

Authors' abstract:

We present a signaling model of corporate philanthropy. We argue that CSR may serve as a means of vertical differentiation in a market where
quality is difficult to observe, so that a firm must signal its aversion to sacrificing quality (i.e., generate trust with the consumer). Our separating
equilibrium is built on the assumption that entrepreneurs can be of two types – they are either purely profit motivated or they care about both
profits and the externalities they impose. This difference in entrepreneurs’ preferences makes corporate philanthropy more expensive for profit maximizing entrepreneurs than it is for ‘socially-minded’ entrepreneurs, who gain some warm glow from charity. In contrast to earlier work, our
model does require any complementarities between production and CSR provision, and is not subject to the Friedman critique that it is more
efficient for firms to return earnings to shareholders to make their own social expenditures. Preliminary empirical tests support our framework: corporate philanthropy and profits are positively related only in industries with high advertising intensity and high competition.

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This citation taken from ECCE's 2007-2008 Top Studies on ESG