Does Product Market Competition Foster Corporate Social Responsibility?

35 Pages Posted: 14 Sep 2012 Last revised: 9 Feb 2014

Caroline Flammer

Boston University

Date Written: January 2014

Abstract

This study examines whether product market competition affects corporate social responsibility (CSR). To obtain exogenous variation in product market competition, I exploit a quasi-natural experiment provided by large import tariff reductions that occurred between 1992 and 2005 in the U.S. manufacturing sector. Using a difference-in-differences methodology, I find that companies react to tariff reductions by increasing their engagement in CSR. This finding supports the view that CSR is a valuable resource that allows companies to improve their competitiveness. I further argue and provide evidence that the increase in CSR depends on the institutional environment as well as CSR- and firm-specific characteristics. Specifically, I find that the increase in CSR is larger for companies operating in industries where the CSR-sensitivity of customers is higher such as the business-to-consumer sector and durable experience goods markets. I also find that companies focus their additional CSR investments on their core stakeholders such as customers and employees. Finally, I find that the increase in CSR, albeit smaller, remains significant for companies facing higher financing constraints.

Keywords: Corporate Social Responsibility, Product Market Competition, Import Tariffs

JEL Classification: M14, F13

Suggested Citation

Flammer, Caroline, Does Product Market Competition Foster Corporate Social Responsibility? (January 2014). Available at SSRN: https://ssrn.com/abstract=2146280 or http://dx.doi.org/10.2139/ssrn.2146280

Caroline Flammer (Contact Author)

Boston University ( email )

Boston University Questrom School of Business
595 Commonwealth Avenue, Office 634A
Boston, MA 02215
United States

HOME PAGE: http://sites.bu.edu/cflammer/

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