Competing for Government Procurement Contracts: The Role of Corporate Social Responsibility
67 Pages Posted: 14 Jan 2015 Last revised: 6 Nov 2017
Date Written: July 31, 2017
This study examines whether corporate social responsibility (CSR) improves firms' competitiveness in the market for government procurement contracts. To obtain exogenous variation in firms' social engagement, I exploit a quasi-natural experiment provided by the enactment of state-level constituency statutes, which allow directors to consider stakeholders' interests when making business decisions. Using constituency statutes as instrumental variable (IV) for CSR, I find that companies with higher CSR receive more procurement contracts. The effect is stronger for more complex contracts and in the early years of the government-company relationship, suggesting that CSR helps mitigate information asymmetries by signaling trustworthiness. Moreover, the effect is stronger in competitive industries, indicating that CSR can serve as a differentiation strategy to compete against other bidders.
Keywords: government procurement contracts; corporate social responsibility; non-market strategy; information asymmetry; trust
JEL Classification: D82, H57, M14
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