Investee Peers and the Imitation of Corporate Social Strategy

Abstract

As institutional ownership becomes prevalent, firms are faced with competitions not only from their industry peers but also from investee peers with whom they share common investors. To compete for the limited financial resource, firms likely refer to and imitate their investee peers’ behaviors to gain equal or favorable treatment by the common institutional investors or to prevent the investors from withdrawing their capital investment. In this study, we investigate how firms react to their investee peers’ corporate social responsibility (CSR) performance using data on 2267 listed firms in the U.S. from 2002 to 2017. After addressing potential endogeneity issues, we find that high CSR performance of investee peers motivates the focal firm to improve its own CSR performance. Further, the investee peers’ effect on the focal firm’s CSR performance is more pronounced if the investee peers are more visible. Also, when investee peers are linked by dedicated vis-à-vis transient institutional investors, the peer effect becomes stronger.