Corporate social responsibility activities and firm performance: The moderating role of strategic emphasis and industry competition (original) (raw)
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The effect of competition on firm performance and activities is at the core of strategy research; however, the question of how competition affects CSR remains largely understudied. This is partly due to endogeneity issues inherent in the question, and partly due to problems with existing data and methods. We overcome these limitations by triangulating traditional and non-traditional research methods in a specific empirical setting: addressing endogeneity issues not only with fixed effects and instrumental variables but also by calibrating market structure and strategic CSR in a simulation. Results of the more static regression analysis show that competition and CSR of competitors increase CSR at the firm level, while the more dynamic simulation analysis demonstrates that competition in fact decreases CSR at the industry level.
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This paper proposes a novel Corporate Social Responsibility (CSR) index based on a Data Envelopment Analysis (DEA) model. Acknowledging the argument that companies might favor those CSR dimensions that provide strategic competitive advantages, we argue that the index can capture companies' strategic approach to CSR. Furthermore, our findings reveal a neutral relationship between this strategic CSR index and economic performance as measured by ROA and Tobin's Q, when controlling for firm unobserved heterogeneity and past economic performance. By contrast, an equally-weighted index of the same CSR indicators is found to be negatively related with ROA, which reinforces our claim that this specific DEA-based index is a measure of strategic CSR.