Competitive Corporate Social Responsibility

Abstract

Fifty years after publication of Milton Friedman's seminal article in the NY Times Magazine, the question of corporate social responsibility (CSR) remains an important topical issue. We provide a role for CSR in a fully rational framework even when shareholders care only about profit maximization. CSR is a strategic commitment to emphasize either consumer or employee interests in a multi-stage product market game against rival firms. We find that low cost firms in concentrated industries engage in higher levels of CSR and have higher profits. Empirical tests of the main hypotheses are confirmatory: low cost firms use more CSR; market to book increases in CSR and a dynamic test of firms migrating to less concentrated industries exhibit reductions in CSR.