Abstract
Abstract This study investigates government public policies facing competing firms’ strategic corporate social responsibility (CSR) activities and finds that the choice of CSR crucially depends on corporate profit tax. We demonstrate that strategic CSR decreases while social welfare increases with corporate tax. When the government grants uniform output subsidies, we show that bilateral CSR leads to a lower CSR level than under unilateral CSR but bilateral CSR is always beneficial to society. However, when the government grants discriminatory output subsidies which yield different levels of unilateral CSR, we show that domestic CSR leads to a lower CSR level than under foreign CSR. In an endogenous CSR choice game, domestic CSR (no CSR) is a Nash equilibrium when corporate tax is low (high) under the uniform subsidy, while foreign CSR could be a Nash equilibrium when corporate tax is low under the discriminatory subsidy.
Highlights
As globalization increasingly prevails, domestic industries in most countries are concentrated by a few large foreign-owned firms, which account for a substantial share of aggregate international trade.1 The acquisition of domestic firms’ stocks by those firms is a widespread, visible phenomenon.2 For example, the French automotive company Renault acquired a 36.8% equity stake in Nissan Motor in 1999
When each firm decides whether to engage in corporate social responsibility (CSR) at the beginning of the game, we show that domestic CSR is a Nash equilibrium when corporate tax is low
The effects of corporate tax on strategic CSR and social welfare are conflicting: the strategic level of CSR decreases but social welfare increases with corporate tax. These results are robust under the discriminatory subsidy. This finding is significant for policymakers because corporate profit taxes are not neutral toward firm behavior in the presence of strategic CSR
Summary
Domestic industries in most countries are concentrated by a few large foreign-owned firms, which account for a substantial share of aggregate international trade. The acquisition of domestic firms’ stocks by those firms is a widespread, visible. The Global Reporting Initiative provides a globally applicable framework for drawing up sustainability reports in accordance with internationally recognized criteria.4 Both international acquisitions and CSR activities by foreign-owned firms have become imperative global business strategies. We address the strategic motivations for CSR arising from the interactions between domestic and foreign-owned firms under government public policies such as corporate profit taxes and output subsidies.
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
