One Hundred and Thirty Years of Corporate Responsibility

U.S. history has been punctuated by time-varying attitudes and shifting public discourse about the externalities and responsibilities of business. Applying natural language processing (NLP) techniques that account for context evolution in historical news text, we develop a monthly time-series index dating back to the late 19th century that measures public attention to environmental and social (E&S) issues related to business (ESIX). We explore the properties of ESIX and relate it to macroeconomic fluctuations, asset prices, and corporate decisions. Public attention to social issues around business arises during times of macroeconomic and social instability, whereas attention to environmental issues is heightened during times of relative prosperity. At the firm-level, positive exposure to such public attention is associated with lower future stock returns. Heightened E&S concerns reduce the level of corporate investments and weaken the link between corporate investments and Tobin’s q in the short-run (i.e., 1-2 years out), but ultimately improve both the level and efficiency of corporate investments in the long-run (i.e., up to 10 years out). These findings indicate that markets are unable to fully price the long-term real effects of the demands for corporate responsibility.