Using the firm-level corporate social responsibility (CSR) ratings of Kinder, Lydenberg, Domini, we find that firms score higher on CSR when they have Democratic rather than Republican founders, CEOs, and directors, and when they are headquartered in Democratic rather than Republican-leaning states. Democratic-leaning firms spend 20 million more on CSR than Republican-leaning firms (80 million more within the sample of S&P 500 firms), or roughly 10% of net income. We find no evidence that firms recover these expenditures through increased sales. Indeed, increases in firm CSR ratings are associated with negative future stock returns and declines in firm ROA, suggesting that any benefits to stakeholders from social responsibility come at the direct expense of firm value.

Firms sharing a board member with a media company receive more news coverage. This in turn affects those firms’ financing choices: they issue more bonds, rely less on bank loans, and have lower blockholder ownership. These findings are consistent with media coverage acting as an external governance mechanism that substitutes for monitoring by banks and equity blockholders. The effect of media-linked directors on financing is evident in panel and time series analyses and using two different instrumental variable analyses, suggesting a causal relation.