Can Socially Responsible Firms Survive Competition? An Analysis of Corporate Employee Matching Grants

Fifty-five percent of S&P 500 firms have employee matching grant schemes. Matching grants act as a coordination mechanism which reduces free-riding by socially conscious employee-donors who value a public good but prefer someone else to pay for it. The popularity of matching schemes demonstrates that socially responsible firms can survive market competition. Our model shows that when socially conscious employees are more productive or value working together matching schemes can enhance the welfare of these employees and raise more for charities without reducing profits for investors in firms in competitive labor and capital markets. We document that labor productivity is higher at firms with matching schemes and that these firms are also more likely to be ranked as one of the “100 Best Companies to Work for”.

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