Competition, Market Institutions, and CSR Specialization

Abstract

Does competition foster or stifle corporate social responsibility (CSR)? The current corporate social responsibility (CSR) literature featuring this debate mainly centers on the two opposing mechanisms of competition with respect to CSR—declining resources available for CSR and increasing strategic incentives for differentiation from CSR. Moreover, this debate also largely rests on a dichotomous assumption that firms only increase or decrease CSR under competitive pressure. Relaxing this assumption, in this study, we develop a finer-grained concept—CSR specialization—to describe to what extent a firm is focused on a selective few CSR dimensions under competition. Further, we posit that the two opposing mechanisms coexist and interact, leading to an inverted U-shaped relationship between competition and CSR specialization. We further predict that market institutions, namely, market openness and capitalism type moderate this relationship through strengthening the differentiation mechanism. Employing Multilevel Linear Modeling (MLM) estimation technique on a global dataset that includes 1,586 firms in the year 2002 to 2017, our findings support our hypotheses with robustness tests. Our study points to reconciling the debate in firms’ CSR response in strategic management literature and makes meaningful contributions CSR literature.