Social Preference, Product Market Competition, and Firm Value

50 Pages Posted: 21 Feb 2013 Last revised: 25 Aug 2014

See all articles by Yawen Jiao

Yawen Jiao

University of California, Riverside

Guifeng Shi

Shanghai Jiao Tong University (SJTU)

Date Written: August 24, 2014


This paper analyzes how customers’ social preference (SP) affects firm value and performance through product market competition. We construct a score measuring a firm’s effort of catering to customers’ social preference and find it is positively related to firm value in competitive industries but not in noncompetitive industries. This result is robust to a variety of model specifications and tests addressing simultaneity issues. We identify two channels for this effect to arise. First, higher SP scores lead to superior operating and competition performance in competitive industries. Second, higher SP scores lower financial distress risk in presence of competition pressures. The results suggest social investments can benefit financial performance if used as a product differentiation strategy.

Keywords: social preference, product market competition, firm performance

JEL Classification: G30, G31

Suggested Citation

Jiao, Yawen and Shi, Guifeng, Social Preference, Product Market Competition, and Firm Value (August 24, 2014). Available at SSRN: or

Yawen Jiao (Contact Author)

University of California, Riverside ( email )

Riverside, CA 92521
United States

Guifeng Shi

Shanghai Jiao Tong University (SJTU) ( email )

Antai College of Economics and Management
Shanghai 200052

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