Variable

Explanation

Source

CSP

As a general measure of the corporate social performance in the paper, I form it by adding up scaled KLD net scores in SOCRATES database across all 7 dimensions: product quality and safety, environment, employee relations, corporate governance, diversity and community relations. I further scale the sum by the number of scored dimensions each year for the empirical analysis.

KLD Research & Analytics, Inc.

AT

Logarithmic total assets

Computstat

MB

Market value of equity/book value of equity

Computstat

LEVERAGE

Long-term debt/(total debt + market value of equity)

Compustat

PP & E

Fixed assets/total assets

Compustat

R & D

Firm size adjusted research and development expense

Compustat

ROA

Net Income/total assets

Compustat

ADV

Advertising expenses scaled by total assets

Compustat

EXACCR

Proxy for the firm’s willingness to engage in earnings management. The proxy is calculated by subtracting the average level of accruals used by the firm’s industry from the level of accruals scaled by the firm’s total assets, in which accruals are defined as the difference between net income and cash from operations.

Compustat

MTR

Marginal tax rate is the amount of tax paid on one more dollar of income, which is the proxy for the cost of investment in CSR in terms of after-tax dollars.

Via the website of John Graham

HHI

The Herfindahl-Hirschman index is a proxy for market complexity (e.g., Keats and Hitt, 1988 ), which is calculated by the sum of squared companies’ net sales over the squared main industry sales to which the companies belong.

Compustat

COEFF

The coefficient of regressing logarithmic industry sales on the fiscal year, using data of every five years (e.g., Keats and Hitt, 1988 ). It is a proxy for market munificence, indicating the average growth rate of industrial sales over five years.

Compustat

STD

This is the standard error of the coefficient generated from the above regression, which is a proxy for market dynamism.

Compustat