Impacts of Distributional Social Comparison Behavior on Corporate Social Responsibility: Power of the Small

Abstract

Motivated by the emergence of various corporate social responsibility (CSR) rankings and awards, we study the impacts of distributional social comparison behavior of firms on CSR in a supply chain, consisting of one manufacturer and one retailer. Both the manufacturer and the retailer can choose to make CSR investment, which attracts CSR-concerned consumers. We consider two types of social comparison behavior: ahead seeking that makes one willing to overperform relative to others, and ahead averse that results in underperforming. We find that if the retailer is a large enterprise who has strong negotiation power in the supply chain, his ahead-seeking behavior cannot motivate the up-tier manufacturer to increase CSR investment. In contrast, if the retailer is small, his ahead-seeking behavior can lead to significant increase in the manufacturer’s CSR investment. This is because the increased market share achieved by the small ahead-seeking retailer makes it profitable for the manufacturer to increase CSR investment. Interestingly, the total CSR investment of the supply chain is also higher with the small ahead-seeking retailer than that with the large ahead-seeking retailer. On the other hand, the ahead-averse behavior of the retailer increases the manufacturer’s CSR investment if the retailer is large, whereas it reduces the manufacturer’s investment if the retailer is small. While many contemporary CSR rankings and awards are for large firms in practice, our results suggest that governments and NGOs should pay more attention to small firms, motivating their ahead-seeking behavior or deterring ahead-averse behavior through rankings and awards. Measures to promote consumers’ social consciousness are also helpful to leverage the benefit of ahead-seeking behavior or to offset the negative effect of ahead-averse behavior.