Aiming for Average: The Effect of Peer Standing on the Dynamic Process of Corporate Social Responsibility

Abstract

We evidence a non-linear relationship between firm value and corporate social responsibility, adding to the mixed evidence on this relationship. We show that corporate social responsibility exhibits a dynamic process, which is largely dependent on a firm’s industry, relative standing amongst peers and the distinction between responsible and irresponsible behavior. Surprisingly, we find that responsible behavior could sometimes destroy firm value, while irresponsible behavior could sometimes increase firm value. Endogeneity is mitigated through a novel process that allows us to keep constant the endogeneity inherent in this field, examining corporate social responsibility’s effect on firm value separately.

Keywords: Corporate Social Responsibility, CSR, Environmental Social Governance, ESG

JEL Classification: M14, G30, G32