Does Product Market Competition Foster Corporate Social Responsibility?
Ivey Business School
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.
Number of Pages in PDF File: 35
Keywords: Corporate Social Responsibility, Product Market Competition, Import Tariffs
JEL Classification: M14, F13working papers series
Date posted: September 14, 2012 ; Last revised: February 9, 2014
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