Does Corporate Social Responsibility Spending Affect Strike Risk? Evidence from Union Elections

Abstract

This paper investigates the effect of corporate social responsibility (CSR) spending on labour unions’ propensity to initiate strikes. Given limited financial resources, we posit that firms’ inability to satisfy the demands from all of their stakeholders leads to resource competition among those stakeholders. By exploiting the unique setting of union elections in U.S. firms as plausibly exogenous shocks to labour power, we employ a triple-differences specification and find that firms with high levels of (non-employee) CSR spending are exposed to a significantly higher risk of union strikes. We interpret this finding as evidence consistent with CSR spending intensifying resource competition between employees and other stakeholders. We also document evidence that firms strategically curtail CSR expenditure in non-employee dimensions in response to unionisation in order to mitigate the increased strike risk. Such downward adjustment in CSR spending, however, is less pronounced in financially constrained firms, firms in “sin” industries and firms facing high levels of product market competition, due to their strong incentives to signal quality through CSR spending. Overall, our study sheds light on the inter-stakeholder relationship through the lens of a powerful stakeholder, i.e., organised labour, and has important implications for managers facing severe labour risk.