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Corporate Social Responsibility and Competition

Narjess Boubakri American University of Sharjah, Sharjah, UAE

nboubakri@aus.edu

Sadok El Ghoul University of Alberta, Edmonton, AB T6C 4G9, Canada

elghoul@ualberta.ca

Omrane Guedhami University of South Carolina, Columbia, SC 29205, USA

omrane.guedhami@moore.sc.edu

Sorin Rizeanu University of Victoria, Victoria, BC V8W 2Y2, Canada

srizeanu@uvic.ca

Abstract Going beyond the legal or regulatory requirement in order to be socially responsible is not without a cost – and firms’ commitment to CSR often departs from a profit maximization goal (e.g. Aupperle et al., 1985; Baron, 2006). The firm has to satisfy on one hand social responsibility pressures coming from internal and external stakeholders, and on the other hand, equal if not greater opposing pressures for financial performance, imposed by the internal stakeholders’ fiduciary duty to earn a maximum return on investment. We find that higher competition disturbs this precarious balance, as the commitment to social responsible causes is eroded with higher competition. Using a sample of publicly listed firms from 50 countries, we find that competition is negatively and significantly related with the firm’s vow to corporate social responsibility.

January , 2016

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1. Introduction

In this paper we examine if socially responsible behavior continues under higher market

pressure, when decision makers will be more hesitant to pass thinner profits to the benefit of

social and/or environmental stakeholders. Product market competition is the most important

factor for market efficiency (Shleifer and Vishny, 1997), and its effects are multilayered – it can

act a disciplinary mechanism (e.g. Balakrishnan and Cohen, 2009; Chou et al., 2011); it increases

the rate of innovation and productivity growth (e.g. Geroski, 1990; Van Wijnbergen and

Venables, 1993) and leads to more efficient decision-making structures (e.g. Caves and Barton,

1990; Green and Mayes, 1991; Caves et al., 1992). Further on, competition provides better

performance assessment (e.g. Hart, 1983; Nalebuff and Stiglitz 1983), higher takeover risk (Kole

and Lehn, 1999) and greater likelihood of liquidation (Schmidt, 1997).

“Corporate social and environmental behavior that goes beyond the legal or regulatory

requirements”1 is now a common practice, with Global 500 companies spending, on average,

US$20 billion per year on CSR (EPG Report, 2015). But going beyond the legal or regulatory

requirements is not without cost - firms’ commitment to CSR often departs from a financial

profit maximization goal (e.g. Aupperle et al., 1985; Baron, 2006), as firms may be willing to

sacrifice financial efficiency for the general interest (e.g. Elahuge, 2005). This view is consistent

with a vast amount of CSR literature that finds mixed empirical results when trying to link CSR

commitment to financial performance (e.g. Griffin and Mahoney, 1997; Margolis and Walsh,

2003). Performing responsibly may involve additional costs that could be avoided or that

should be assumed by third parties (Waddock and Graves, 1997). Or, in other cases, firms may

bypass lucrative opportunities as these could impact their CSR pledge.

We expand the extant literature on the link between product market competition and

CSR by examining an international sample of 9,703 firm-year observations, representing 2134

unique firms from 50 countries. Prior research of the relationship between product market

competition and CSR has mainly used the level of industry concentration as the sole measure of

competition (e.g. Fernandez-Kranz and Santalo, 2010; Flammer, 2015). Economics literature

points out the complexity of describing competition and that its fundamentals need a

multifaceted framework to be examined properly (e.g. Raith, 2003; Beneito et al., 2015). More

1 CSR definition according to Kitzmueller and Shimshack, 2012

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narrowly defined gauges of competition, such as industry concentration or tariffs, may well

seize or be skewed by other factors – such as foreign competition and imports in the case of U.S.

industry concentration, or better profitability in the case of tariff reduction. We study

competition from a comprehensive stance that includes a large variety of domestic and foreign

competition determinants at country level, as defined in the World Economic’s Forum Global

Competitiveness Index.

We begin by estimating the impact of competition on CSR. Our findings indicate that,

under increased market pressures, economic/financial concerns will take precedence to social

responsibility, as firms in a more competitive environment will be likely to focus on

investments that are less altruistic, with shorter term returns, and with more traceable results in

the financial statements. This effect is consistent, as both the environmental dimension and the

social dimension of corporate responsibility are negatively and highly significantly related to

competition and its various sub-dimensions. This implies that firms will pursue fewer CSR

strategies including emission reduction, product innovation and resource reduction under the

threat of competition in the marketplace. The firm’s commitment to community, its interest in

diversity, employment quality, health and safety, human rights, product responsibility and

training and development will dwindle under competitive pressures. Second, we analyze the

pillars of domestic and foreign competition and their impact on the firm’s undertaking of CSR.

Notably, we find that the intensity of the local competition, the extent of market dominance, the

effect of anti-monopoly policies as well as the total tax rate profits deteriorate the firm’s CSR

commitment. Similarly, indicators and drivers of higher foreign competition are significantly

and negatively related with firm’s CSR. For instance, eased trade barriers, higher foreign

ownership, more relaxed foreign investment rules as well as higher imports and lower trade

tariffs are the foreign competition characteristics that hinder a firm’s CSR involvement.

The rest of the paper is organized as follows. Section 2 presents extant literature

evidencing the link between competition and CSR. Section 3 describes the sample, including

data sources and variable definition. Section 4 covers our empirical results and robustness tests,

and Section 5 concludes.

2. Competition and Corporate Social Responsibility

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The effects of product market competition on the firm’s commitment to CSR have been

under scrutiny in the recent economics literature, but yet, the issue is far from closed. Studies on

both the effect of competition and the role of CSR on the firm provide diverse and often

conflicting outcomes, both in theoretical interpretation as well as in the modelling of the

research question.

Competition has been identified early in the economics literature as one of the main

firms’ driver. In its classical interpretation steaming from Adam Smith and David Ricardo, later

reiterated in the neoclassical economics literature (e.g. Arrow and Hahn, 1971), competition

purported “free competition”. With fewer barriers as possible to economic activities, firms will

realize a welfare maximum, under the shelter of the “invisible hand”. In this archetypical

environment, supply and demand produce most, if not all the results, with competition leading

to the existence of an equilibrium price, the elimination of disturbances as well as the optimal

allocation of resources. In the classical/neoclassical view of the economic ecosystem,

competition is measured by the number of firms in the industry, prices and quantities converge

toward equilibrium, and uncertainty, risk and expectation are generally excluded.

A more comprehensive perspective of competition was introduced by Marx (1977) and

Schumpeter (1934, 1942). Competition is not only consequential of the circulation of

commodities, but also steams from production and investment. Its equilibrating force is called

under scrutiny as competition is considered to produce also disequilibria, distortions and

misallocation of resources. Competition drives technical change, capital accumulation,

productivity increase, the downfall of old firms, centralization of capital, the production of new

commodities and the rise of the new firms (Marx, 1977). In Schumpeter’s (1934, 1942) view,

competition is an evolutionary process of “creative destruction”. This process is not necessarily

equilibrating, and competition is a perpetual sequence of moves and countermoves, a form of

inter-firms warfare. In this race for surplus profits, a more concentrated market with large

corporations does not necessarily delay progress but rather invigorate it.

The legitimacy of CSR is intrinsically related with the firm’s reasoning for existence, and

the firm’s responsibilities toward its internal and external stakeholders. The concept’s roots can

be traced to the early twentieth century, when Andrew Carnegie formulated a classic twofold

statement of social responsibility – the charity principle, which required more fortunate

individuals to assist the less fortunate ones, and – the stewardship principle, with businesses and

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wealthy individuals being stewards or caretakers, not only of shareholders’ investments, but

also of the society’s resources. The modern grasp of the concept involves going beyond the legal

requirements and the company’s duty to shareholders, to minimize any harm and maximize the

long-run beneficial impact of the firm on society (e.g. Bloom and Gundlach, 2001). Social

responsibility converts into a balancing act: “business must balance economic performance,

ethical performance, and social performance, and the balance must be achieved among various

stakeholders.” (Lantos, 2001, pg.601).

This newer understanding of social responsibility takes into consideration that the firm

deals with economic and noneconomic decisions, along with short-term and long-term return

perspectives. Competition will then intervene in a pre-existing sea of conflicting pressures for

social responsibility, and an increase in competition will change the weight of the demand for

economic performance and shorter-term returns. Indeed, the firm has to satisfy on one hand

social responsibility pressures coming various stakeholder groups, including institutional

shareholders (e.g. McWilliams and Siegel, 2001), but also employees, consumers or the

community (e.g. Caroll, 2000). Social responsibility issues are being urged by shareholders,

analysts, regulators, activists, labor unions, employees, community organizations and news

media (Tsoutsoura, 2004). But, on the other hand, there is an equal if not greater opposing

pressure for improved financial performance coming from shareholders, be they individuals or

institutional investors such as mutual and pension fund managers. In many if not most cases,

the acknowledged reason for being financially invested with the firm is the fiduciary duty to

earn a maximum return on investment. Corporate managers’ jobs are often contingent on

showing a steady increase in stock price (Boatright, 1999), most often the push for profit

maximization being closer to the manager than the push for better social performance.

Higher competitive pressures will distort the balance between stakeholders’

requirement for social responsibility and financial profit. The more likely social responsibility

demands to squander their weight, in high competitive pressure conditions, are the ones related

to altruistic or humanitarian CSR. Indeed, altruistic CSR actions involve the firm giving back to

the society, regardless of whether the firm will benefit financially. Examples are firm’s

charitable contributions toward alleviating alcohol and drug problems, poverty, crime,

illiteracy, unemployment and other social ills within a community. Such contributions, to be a

good example of altruistic CSR, will have to have no immediate gain for the firm. Even more, in

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some cases, contributions may be profitable for adversarial firms and thus may damage further

the firm’s competitive position, as others will free ride off its efforts and expenditures. Altruistic

managers force stockholders to sacrifice part of their income to address and rectify problems of

social concern, which in theory, and if not for inefficiencies, should be addressed by the

government’s use of taxes.

A second category of social responsibility initiatives that lose traction in higher

competitive environments can be classified under strategic CSR. With strategic CSR, the firm

social goals might be profitable, usually in long-run, as the market provides financial incentives

for perceived socially responsible behavior. In this scenario, stakeholders outside the

shareholder group are means to maximize shareholder wealth (e.g. Goodpaster, 1996). Strategic

social responsibility firms foster expenditures in short-run, which they view as investments in

goodwill (Vaughn, 1999) to yield financial returns in long-run (McWilliams and Siegel, 2001).

As other marketing activities, such as marketing research and brand image building, such long-

term benefits will likely not show up on a firm’s financial statements. Consequently, it is to be

expected that a manager under high competitive pressures will likely cut or reduce such long-

term investments with indirect financial benefits. Tougher competition is likely to lead to a

more aggressive investment behavior (Caves and Porter, 1977) and to erode growth

opportunities and increase the risk of existing projects, prompting firms to opt for more

conservative investment decisions (Fudenberg and Tirole, 1984). Firms experiencing higher

competition reduce capital expenditures significantly – e.g. Fresard and Valta, 2013, documents

that U.S. firms drop their investment level by 17% following tariff cuts, and amend long-term

investments, for instance R&D. De facto, the firm’s financing activity responds ominously to

competition (e.g. Akdogu and MacKay, 2008; Khanna and Tice, 2000; Xu, 2012; Valta, 2012,

among many others), with more cash being held at hand, and firms issuing less debt and more

equity.

A third category of social responsibility undertakings that competition is likely to impact

includes the fulfilling of the firm’s ethical duties, ethical CSR. Ethical duties must be often

adhered to at the firm’s expense, including foregone profits, as ethical covenants with moral

standards supersede or should supersede self-interest. Managers find themselves often having

to deal with a trade-off, between short-run profitability and moral actions (Lantos, 2001). A

classic example is the investment in product safety or pollution control that goes beyond legal

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requirements, and reduces shareholder profits (Boatright, 2000). Ethical social responsibility is

good business in long run, as it builds and/or preserves firm’s reputation and minimizes the

future cost of fines and litigation, as well as future bad publicity. Nevertheless, distorting

competition forces may change the way firms consider ethical decisions (e.g. Enderle, 2004;

Sethi and Sama, 1998). The firm’s ethical conduct manifests itself through individual managerial

behavior, and, as for any other individual, a manager’s ethics will draw on her/his personality,

cultural and value orientation, as well as rewards and punishments (e.g. Hegarty and Sims,

1978). Extensive evidence in the financial economics literature points out that managers may

behave un-ethically under competitive pressure (e.g. Shleifer, 2004). Indeed, countless examples

of shady deals, corruption, excessive executive pay, earnings manipulation, child labor and

many others are a normal occurrence in the financial press, and largely analyzed in various

academic journals.

The huge amount of economics literature addressing competition has yet to be clarified

on the empirical side, with the gap between the theory and the empirical requiring still more

effort (e.g. Tirole, 1988; Boone, 2008a and 2008b). A major issue on the empirical side is that

product market competition is often identified by market concentration across industries

(Ashenfelter and Hannah, 1986). As suggested by the seminal work of Schumpeter (1934),

market concentration is at best a proxy for market power and it varies significantly across

industries. Second, omitted firm, industry and country characteristics may obscure the

relationship between market concentration and firm’s CSR vow. Competition may have

different effects on the market and implicitly on the firm’s motivation to be a better citizen

depending on the source of the rise in competition. The most inefficient firms may exit the

market with higher competitive pressures – the selection effect (Boone, 2000; Boone, 2008a and

2008b); or the valuation of the most efficient firms will surge, implying an increase in the

Herfindahl index – the reallocation effect (Boone, 2000; Boone, 2008a and 2008b). An increase in

market concentration in each of these situations is an unsuitable measure of a decrease in

competition.

3. Sample and variables

3.1. Sample selection and overview

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The primary data source for testing our hypotheses on the impact of competition on firms’

commitment to corporate social responsibility comes from Asset4, for the environmental, social

and governance data, and from the World Economic’s Forum Global Competitiveness Index

Historical Dataset, for the competition related data, including domestic and foreign competition.

To this, we appended financial data from Compustat North America (for U.S. and Canadian

firms) and Compustat Global (for firms from the remaining countries). Financial firms (SIC codes

between 6000 and 6999) are excluded, as they are subject to different regulations. We also drop

firms with missing observations on CSR scores and any other control variables. After applying

these screens, as shown in Table 1, our final sample consists of 9,703 firm-year observations,

representing 2,134 unique firms from 50 countries over the period 2006 to 2011.

3.2 Regression Variables and Descriptive Statistics

3.2.1. CSR variables

Following Ioannou and Serafeim (2012) and El Ghoul et al. (2015), among others, we

measure firms’ pledge to social responsibility using the Environmental, Social and Governance

(ESG) metrics. More specifically, we focus on the two dimensions that are the most

representative in describing the firm’s commitment to the society, namely the Environmental

and Social dimensions. The Environmental dimension, ENV, ranging from 1 (poor performance)

to 100 (outstanding performance), is a weighted measure of key factors covering among others

the firm’s environmental impact ratio, the supply chain impact on the environment, carbon

emissions, water use, waste production, environmental disclosure, reporting and disclosure,

forest degradation, biodiversity and wildlife impact, as well as the firm’s proactive measure

such as impact reduction targets, environmental management and certifications. As shown in

Table 2, we note that in our sample, on average per country, this dimension ranges between

10.29, in Panama, to 82.80 in Spain.

The Social dimension, SOC, ranging from 1 (poor performance) to 100 (outstanding

performance), estimates the firm’s social impact and risk, considering, among others, if the firm

is under investigation for social issues, human rights violations, human trafficking, indigenous

people’s rights, labor practices, discriminatory employment or business practices, sweat shops,

child labor, animal welfare, money laundering, bribery or corruption, trade violations,

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obstruction of justice and workplace safety. In our sample, on average per country, this

dimension ranges between 13.51 in Panama to 87.77 in Spain.

Following Ioannou and Serafeim (2012) and El Ghoul et al. (2015), we calculate the firm’s

overall commitment to social responsibility score, CSR, by taking the average of these two

dimensions. This score varies on average between 12.23 in Panama to 85.28 in Spain, and overall

for the entire sample the average is 58.60.

3.2.2 Competition variables

We measure the country market competition by using the measures provided by the

Global Competitiveness Report. We note that these measures are comprehensive of a country’s

competition as they focus on a multitude of facets at times neglected by studies addressing the

efficiency of the goods market. More specifically, the domestic competition index, COMP_D,

encompasses the intensity of the local competition, extent of market dominance, effectiveness of

anti-monopoly policy, effect of taxation on incentive to invest, total tax rate, number of

procedures to start a business, time required to start a business and agricultural policy costs. In

our sample, this index ranges between 3.39 in the Russian Federation to 6.59 in Singapore.

Additionally, the foreign competition index, COMP_F, includes the prevalence of non-tariff

barrier, trade tariffs, prevalence of foreign ownership, business impact on rules on FDI, burden

of customs procedures, imports as percentage of GDP. In our sample this index ranges between

3.41 in the Russian Federation to 6.56 in Singapore. Our variable COMP is the weighted average

of COMP_D and COMP_F, and it ranges between 3.59 in the Brazil and 5.56 in Singapore.

3.3. Sample Overview

In Table 1 we examine the structure of our sample by country of origin, year and

industry affiliation (Campbell, 1996). We note that of the 9,703 firms-year observations

approximately 3,261 firm-year observations (33.61% of the sample) are from the United States,

followed by 1,690 firm-year observations (17.42%) from Japan and 1,073 (11.06%) firm-year

observations from the United Kingdom. With the exception of these three clusters, the sample is

quite well distributed across the remaining 47 countries. In Section 4.2.1, we conduct further

robustness tests on the sample construction, by excluding these major clusters, in our main

specifications. To account for heterogeneity due to country characteristics, we use country fixed

effects in our specifications.

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We note that Asset4 has enhanced coverage over time, as the number of observations

has increased from 1.221 in 2006 to 2,024 in 2010, to decrease again to 1,575 in 2011. Similarly,

we remark that our firms are widely dispersed across industries, with a more sizeable

distribution in the Consumer Durables (15.40%) and Basic Industry (16.43%). To control for

potential heterogenous effects we introduce industry fixed effects in our specifications.

4. Results

4.1. Does Competition impact CSR?

Table 6 presents our main evidence on the impact of product market competition on the

firm’s commitment to social responsibility, along with its two main dimensions, environmental

and social. Our main variable of interest, COMP, is the composite index of competition,

including domestic and foreign competition, averaging over 13 indices of competition, as

described above. We begin our analysis in column (1) by reporting results of the impact of

competition on social responsibility, over the sample of 9,703 firms. Consistent with our

expectation, we find that COMP is negative and statistically significant at the 1% level, implying

that under the distorting effect of competition, managers will be likely to undercut resources

dedicated to altruistic, strategic or ethical social responsibility duties.

We note that all our control variables except for leverage and GDP per capita load at the

1% level in the expected direction. Consistent with extant financial economics literature (e.g.

Harajoto and Jo, 2011), better firm governance has a significant positive effect on the firm’s

commitment to social responsibility. Indeed, as seen in column (1), the GOV coefficient loads

positively and significantly at 1%, suggesting that when the firm is governed by a better system

of rules, practices and processes, its social and environmental pledges will be positively

impacted. This is also consistent with the conflict resolution hypothesis of CSR, as this shows

that firms may use governance mechanisms along with CSR activities to streamline conflicts of

interest between managers and investing and non-investing stakeholders (Jensen, 2001; Calton

and Payne, 2003; Scherer et al., 2006). We find that firm size has a positive and highly significant

impact on the firm’s involvement in CSR, as shown by the coefficient of SIZE. This is consistent

with the view expressed by Udayasankar (2008) and McWilliams and Siegel (2001), among

others, that the motivational bases for CSR participation are likely to be different with the firm’s

size, as a measure of the firm’s visibility, resource access and scale of operations. Smaller firms

may have to overcome additional barriers related to their size to be able to have their social

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responsibility vow considered (e.g. Lepoutre and Heeene, 2006). To control for the firm’s

performance, we include the firm’s sales growth, SALEG, and the firms return on assets, ROA.

Beforehand, we note that the financial economics literature is still inconclusive on the direct

relation between firm performance and CSR (e.g. Margolis and Walsh, 2003; Vogel, 2005). We

find that firms with higher current growth in sales are pledging less to social responsibility

causes. We interpret these results through the perspective of our sample’s particularities,

namely the large presence of mature firms that score high on CSR while having more stable, less

poignant growth. When looking directly at firm’s financial performance, as captured through

the return on assets, ROA, we find that more profitable firms are more likely to pledge for social

responsibility, consistent with extant literature (e.g. McGuire et al., 1988). Further on, we

examine the firm’s investments in R&D and its relationship with CSR involvement. Consistent

with McWilliams et al. (2006), we find a significant positive relationship between R&D

spending and firm’s social responsibility involvement, which suggests that firms with a longer

term investment perspective may use CSR as part of their strategy toolbox. Similar results are

obtained in columns (2) and (3), when we further our analysis by examining separately the

effect of competition on the environmental and social dimension of CSR.

In Table 7, Panel A, we examine one by one the different drivers of the domestic

competition and their impact on the firms’ involvement with social responsibility. As shown in

column (1), domestic competition is a significant deterrent of CSR pledges, with COMP_D

coefficient negatively and statistically significant at 1%. The intensity of local competition,

INTENSITY_LOC, captures the opinion of a representative sample of business leaders in their

respective countries on the intensity of competition, being therefore an excellent measure of the

perceived level of competition. As seen in column (2), the executives’ perception of more intense

competition across all industries in the country is related with a lower level of investment in

social responsibility actions, as shown by the negative and statistically significant coefficient at

1%. Similarly, when the corporate activity is spread among many firms, as opposed to being

dominated by few business groups, CSR involvement significantly decreases, as indicated by

the negative and statistically significant coefficient for the extent of market dominance,

MARKET_DOM, in column (3). This index captures a measure somewhat similar to market

concentration (with opposite sign), but focused on perception, as it gauges directly the opinion

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of the executives in a particular country. Antimonopoly/antitrust polices are important

determinants of competition around the globe; however is rather the effectiveness and the

enforcement that matter. This perceived effectiveness, as measured by the executives’ answer to

the question “To what extent does anti-monopoly policy promote competition in your

country?” is negatively and significantly related to our measure of social responsibility, as

shown by the coefficient of ANTI_MON, in column (4). This indicates that, when the country is

protected from monopolies and resources are more efficiently allocated, executives are more

concerned with financial profit maximization and they focus on shorter-term objectives,

consistent with the Schumpeterian view of competition. Total tax rate, calculated as a

combination of profit tax, labor tax, contributions and other taxes, describes partially the

domestic will to produce and prosper, as lower taxes stimulate competition. We find that lower

taxation is negatively and significantly related to CSR, suggesting that higher competition will

disrupt firm’s interest in social or environmental causes, as shown by the coefficient of

TAX_PROFITS in column (8). We should note that our more mechanical measures for capturing

domestic competition, such as the number of procedures to start a business, NO_PROC, the

time length necessary to start a business, NO_DAYS are less important determinants of the

Competition-CSR relationship. We also find that agricultural policies are not a significant

determinant of CSR, a result that we interpret only in relation to our sample, as we do not have

firms in this domain of activity.

In Table 7, Panel B, we focus on the foreign competition, its components, and their

impact on the firm’s involvement in CSR. First we note that by itself, foreign competition does

not significantly seem to impact CSR. However, as seen in columns (2)-(7), many of its

components are significant determinants of the firm’s CSR contribution. First we remark that a

lower incidence of tariff and non-tariff trade barriers is negatively and significantly related to

CSR, as indicated by the coefficient of TRADE_BARRIERS. A barrier to trade is a government

enforced restraint on the flow of foreign goods and services, with the effect of raising the price

of imported goods relative to domestic goods. This results support the Schumpeterian view of

competition, as we can infer that firms in countries with more protection from competing goods

and services local firms are more likely to thrive, create a surplus for themselves, and therefore

be more invested in long term strategies and more likely to be altruistic and strategic toward

social or environmental objectives. In column (3), we investigate the role of foreign ownership,

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as perceived by the representative sample of managers from each country. We note that foreign

ownership is most often associated with increased productivity (e.g. Perez-Gonzales, 2005;

Petkova, 2007), likely due to the ability of the foreign owner to transfer superior technology,

bring organizational capital and provide access to international capital markets (Caves, 1996).

But this increase in productivity is heating the competition, and, as we see from the coefficient

of FOREIGN_OWN, this has a disruptive effect on the firms’ CSR commitment, consistent with

our main findings. For the same reasons, the country’s rules regarding foreign direct investment

show a similar inference in column (4). Imports as a percentage of country’s GDP are a direct

measure of trade openness. By exposing firms and products to international competition, on

one hand economies are encouraged to focus on areas of competitive advantage. But on the

other hand, the perpetual sequence of moves and countermoves involved in the competition

lead inter-firms warfare will have a negative and significant effect on CSR contributions, as we

see in column (6). The examination of country’s duty tariffs in column (7) also points out that an

increase in product market competition is likely to be followed by a decreased CSR

commitment.

Overall, these results strongly support our expectation that higher competitive forces

will raffle the balance between economic performance and social performance, with the

resulting disequilibrium leading to less investment in social responsibility issues as financial

concerns and short term orientation will take precedence.

4.2. Robustness checks

4.2.1. The effect of the financial crisis and yearly analysis

In Table 8 we extend our analysis by splitting our sample into two sub-samples,

corresponding to the period before and after the financial crisis of 2008. We note that in both

these subsamples our main expectation is confirmed, as competition impact CSR negatively and

at 1% significance level, as we see in columns (1) and (2). We find also that this effect is higher

in the pre-crisis period, as shown by the higher, in absolute terms, coefficient of COMP, in

column (1), which we interpret as an indication that the Competition-CSR relationship, while

continuously negative and significant, is stronger in times of economic prosperity, and is

slightly less powerful in times of economic slowdown and illiquidity. Further on, in columns

(3)-(8), we analyze if our expectations hold on yearly bases. In five of the six year analyzed we

find this relationship to be statistically significant at 1%.

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4.2.2. Alternative sample composition

In Table 9, we examine the robustness of our findings to sample composition by

excluding, one by one, the countries with the largest number of observations, USA, UK and

Japan. As we see in columns (1)-(3), our results are not driven by the gravity of a specific

country in our sample, as the coefficient of COMP is persistently negative and statistically

significant at 1% for all examined sub-samples.

4.2.3. Robustness to the choice of methodology

In Table 10, we test our results under various methodologies, including various fixed

effects, instrumental variables method, demeaning and detrending. In column (1), we introduce

yearly fixed effects, in addition to country and industry fixed effects, and to adjusting for firm-

level clustering. Our results are robust to this specification. In column (2), we examine the

strength of our results if instead of OLS we use a Weighted Least Squares (WLS) approach (e.g.

Berthelot et al., 2012), to control for potential heteroskedasticity. We note that our results are

robust to this specification, as shown by the negative and significant coefficient of COMP in

column (2). Similarly, in column (3), we complement our analysis with an instrumental variable

approach (e.g. Cheng et al, 2014), using the country’s capital controls as an instrument2. This

approach may lead to more consistent estimates, but is less efficient as the standard errors are

larger (Wooldridge, 2002). As seen in column (3) our results are robust, with the coefficient of

COMP negative and significant at 1%. Further on, in columns (4) and (5) we demean and

detrend our measure of firm level social responsibility, CSR, and find that our results are robust

to these additional methodologies.

4.2.4. Alternative Competition proxies

In Table 10, we test alternative competition proxies, following the extant literature on

product market competition. In columns (1) and (2) we focus on two measures of market

2 Specifically, we had to find a set of instrumental variables related to the explanatory variable, COMP, but

unrelated to firm’s social responsibility, CSR. We found that capital controls serve as a good instrument in our case

because capital controls are related to the country’s competition level (e.g. Forbes, 2004), but they are only

remotely related to the firm’s commitment to CSR.

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concentration, HHI and FIRST_FOUR. First, we examine the industry’s Hirschman-Herfindahl

Index, HHI, (e.g. Declerck andM’Zali, 2012; Fernandez-Kranz and Santalo, 2010; Fisman, Heal,

and Nair, 2006). As shown in column (1), we do not find that this measure of industry

concentration is significantly related with firm’s commitment to CSR. This result underlines

Flammer’s, 2015, argument that both the HHI index and CSR may correlate with unobserved

variables and thus have a spurious relationship. In column (2) we find that a simplified measure

of market concentration, capturing the market share of the first four actors in an industry, is

negatively and significantly related to our measure of CSR. As discussed in Karuna, 2007,

among others, it is not clear that such measures indicate a lower or higher competition level, as

it inherently assume that the market structure is exogenous and prices decline as concentration

falls (Bain, 1956). In columns (3)-(5) we study alternative competition proxies following Karuna,

2007. In column (3) we focus on product substitutability, DIFF, calculated using the price-cost

margin as sales divided by operating costs, at the industry level per country. The price-cost

margin measures the negative reciprocal elasticity of demand (Carlton and Perloff, 1994;

Demsetz, 1997, among others), therefore a higher DIFF implying a lower level of product

substitutability. We find that lower product substitutability (higher DIFF) is positively and

significantly related with the firm’s CSR, a result consistent to our main hypothesis. Indeed,

when the product is less substitutable the competition in the industry is more relaxed which in

turn, according to the Schumpeterian view of competition, leads to higher investment in long-

term strategic and altruistic projects, including CSR projects. In column (4) and (5) we test

additionally the relation of the market size, MARKET, measured as the industry’s market size

by industry sales, and the minimal level of investment, ENTCOST, measured as the industry’s

weighted average gross value of the cost of property, plant and equipment. We do not find that

these measures of competition relate significantly with social responsibility.

5. Conclusions

We contribute to the extant research by examining whether public firms around the

globe modify their CSR commitment under the “creative destruction” effect of competition. Our

analysis provides strong, robust evidence that firm’s allegiance to external stakeholders is

diminished under higher competitive pressures, measured on a variety of domestic and foreign

dimensions. The firm has to balance conflicting demands, sometimes coming from the same

16

stakeholders, being under pressure to increase profits but also demanded to spend more,

beyond the limits required by law, on altruistic, strategic, or ethical social objectives.

17

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22

Appendix1. Variable Definition Variable Definition Source

Panel A. Dependent variables CSR Corporate social responsibility score.

Average of ENV and SOC. Asset4 Ratings

ENV Environmental score As above SOC Social score As above Panel B1. Competition COMP Competition. Overall index averaging

domestic and foreign competition. Global Competitiveness Index

COMP_D Domestic competition As above INTENSITY_LOC Intensity of local competition As above MARKET_DOM Extent of market dominance As above ANTI_MON Effectiveness of anti-monopoly policies As above NO_PROC Number of procedures to start a business As above NO_DAYS No days to start a business As above AG_POL Agricultural policy costs As above TAX_PROFITS Total tax rate profits As above COMP_F Foreign competition As above TRADE_BARRIERS Prevalence of trade barriers As above FOREIGN_OWN Prevalence of foreign ownership As above RULES_FDI Business impact of rules on fdi As above CUSTOM_PROC Burden of customs procedures 1 As above IMPORTS_GDP Imports as a percentage of gdp As above DUTY Trade tariffs duty As above HHI Herfindahl Hirschman Index of market

concentration, calculated as the sum of the square of the market share of each firm competing in the market in a given industry country and year.

Authors’ calculation based on Compustat Global

FIRST_FOUR First four firms index, calculated as the sum of the market share of the largest four firms in a given industry, country and year.

As above

DIFF Product substitutability, estimated as the price-cost margin. The price-cost margin is calculated as sales divided by operating costs per industry, country and year.

Authors’ calculation based on Compustat Global, following Karuna (2007)

MARKET The density of consumers in a market or industry, measured by total industry sales per country and year. We adjusted this measure by dividing with total country sales in the given year.

As above

23

ENTCOST Entry cost in an industry, computed as the weighted average gross value of the cost of property, plant and equipment, weighted by each firm’s market share in the industry, per country and year. We adjust this measure by dividing with the total cost of property, plant and equipment per country and year.

As above

Panel C. Control variables GOV Corporate governance score Asset4 Ratings SIZE Log of sales in USD millions Compustat LEV Total debt to assets As above SALEG Sales growth from year t-1 to year t As above ROA Return on assets As above R&D Research and development expenses to

sales As above

GDP Natural logarithm of GDP per capita in USD

World Development Indicators

24

Table 1. Sample breakdown by Country, Year, and Industry

Country N % Country N %

Australia 354 3.65 Poland 45 0.46

Austria 62 0.64 Portugal 354 3.65

Belgium 90 0.93 Russian Federation 5 0.05

Brazil 68 0.7 Singapore 110 1.13

Canada 256 2.64 South Africa 74 0.76

Chile 30 0.31 Spain 146 1.5

China 89 0.92 Sweden 179 1.84

Colombia 4 0.04 Switzerland 175 1.8

Cyprus 6 0.06 Taiwan, China 74 0.76

Czech Republic 7 0.07 Thailand 22 0.23

Denmark 84 0.87 Turkey 21 0.22

Egypt 5 0.05 United Kingdom 1,073 11.06

Finland 121 1.25 United States 3,261 33.61

France 357 3.68 Total 9,703 100

Germany 316 3.26

Greece 41 0.42 Year N %

Hong Kong SAR 121 1.25 2006 1,221 12.58

Hungary 8 0.08 2007 1,365 14.07

India 82 0.85 2008 1,641 16.91

Indonesia 26 0.27 2009 1,877 19.34

Ireland 62 0.64 2010 2,024 20.86

Israel 27 0.28 2011 1,575 16.23

Italy 119 1.23 Total 9,703 100

Japan 1,690 17.42

Korea, Rep. 115 1.19 Industry N %

Luxembourg 22 0.23 Basic 1,594 16.43

Malaysia 46 0.47 Construct 523 5.39

Mauritius 3 0.03 Consumer 1,494 15.4

Mexico 47 0.48 Food 626 6.45

Morocco 3 0.03 Leisure 422 4.35

Netherlands 123 1.27 Other 1,427 14.71

New Zealand 47 0.48 Petroleum 561 5.78

Norway 66 0.68 Service 841 8.67

Pakistan 1 0.01 Textile 584 6.02

Panama 3 0.03 Transport 469 4.83

Peru 6 0.06 Util 1,162 11.98

Philippines 11 0.11 Total 9,703 100

This table presents the sample distribution by country of origin, year and industry. The sample is comprised of 9,703 observations, from 50 countries, over the period 2006-2011.

25

Table 2. Averages of CSR Scores and Competition by Country

COUNTRY CSR ENV SOC COMP COMP_D COMP_F

Australia 52.48 51.48 53.49 5.13 4.76 5.19

Austria 63.28 63.88 62.69 5.07 5.25 5.00

Belgium 56.67 59.66 53.67 5.08 5.44 4.91

Brazil 76.77 68.35 85.19 3.59 3.63 3.59

Canada 55.18 53.61 56.74 5.13 4.88 5.19

Chile 52.69 51.14 54.24 4.97 5.33 4.88

China 37.50 37.10 37.90 4.35 4.13 4.40

Colombia 48.55 43.76 53.34 3.63 3.85 3.60

Cyprus 61.32 37.70 84.95 4.84 5.01 4.78

Czech Republic 72.30 66.21 78.39 4.83 5.29 4.65

Denmark 63.48 66.58 60.38 5.22 5.25 5.21

Egypt 22.32 14.15 30.49 4.05 3.83 4.09

Finland 75.09 79.29 70.89 5.09 5.37 5.01

France 78.26 77.18 79.33 4.82 4.90 4.81

Germany 71.58 71.87 71.29 5.03 5.04 5.03

Greece 62.26 61.51 63.01 4.06 4.53 3.97

Hong Kong SAR 50.00 46.84 53.15 5.76 6.49 5.28

Hungary 76.93 74.28 79.57 4.52 5.44 4.13

India 72.03 69.56 74.51 4.26 4.02 4.30

Indonesia 61.99 53.13 70.85 4.41 4.45 4.40

Ireland 39.69 40.79 38.59 5.32 5.69 5.16

Israel 41.36 42.14 40.57 4.68 4.78 4.66

Italy 69.93 64.47 75.40 4.12 4.31 4.08

Japan 60.88 68.54 53.23 4.73 4.20 4.80

Korea, Rep. 70.09 75.04 65.14 4.51 4.53 4.50

Luxembourg 60.77 61.56 59.99 5.42 6.01 5.14

Malaysia 47.92 47.27 48.58 4.92 5.05 4.86

Mauritius 63.34 63.25 63.43 4.89 5.22 4.77

Mexico 53.15 49.66 56.65 3.96 4.36 3.86

Morocco 53.57 33.93 73.20 4.21 4.04 4.27

Netherlands 77.12 74.28 79.97 5.33 5.37 5.30

New Zealand 49.61 50.18 49.05 5.37 5.26 5.39

Norway 67.92 65.52 70.32 4.89 4.63 4.94

Panama 12.23 10.94 13.51 4.48 5.31 4.25

Peru 31.56 27.10 36.01 4.18 4.63 4.10

Philippines 40.46 38.79 42.12 3.72 4.12 3.62

Poland 46.52 41.34 51.69 4.37 4.69 4.28

Portugal 74.90 69.07 80.74 4.51 4.98 4.38

Russian Federati 65.33 59.04 71.63 3.63 3.39 3.68

Singapore 43.32 40.90 45.75 5.97 6.59 5.56

South Africa 71.14 64.31 77.97 4.72 4.62 4.75

26

Spain 85.28 82.80 87.77 4.41 4.76 4.33

Sweden 74.29 75.32 73.26 5.18 5.53 5.07

Switzerland 66.82 64.97 68.66 5.10 4.94 5.15

Taiwan, China 56.03 59.40 52.66 5.03 5.02 5.04

Thailand 59.80 55.90 63.70 4.44 4.67 4.35

Turkey 52.84 48.30 57.39 4.43 4.39 4.44

United Kingdom 65.94 63.81 68.08 5.13 5.15 5.13

United States 48.74 47.01 50.48 5.05 4.60 5.11

Mean 58.60 58.70 58.50 4.96 4.74 4.97

This table presents averages of corporate social responsibility score, CSR, environmental responsibility score, ENV and social responsibility SOC score, as well as competition COMP, domestic, COMP_D, and foreign, COMP_F, for each country over the sample period. The sample is comprised of 9,703 observations from 50 countries over the 2006-2011 period.

Table 3. Descriptive statistics of the Main Regression Variables

Variable N Mean S.D. Min Q1 Median Q3 Max

CSR 9703 58.6 28.7 6.55 30.82 64.53 86.01 97.59

ENV 9703 58.7 31.26 8.89 26.11 67.67 89.21 96.64

SOC 9703 58.5 29.76 3.38 30.72 64.57 86.49 98.78

COMP 9703 4.96 0.35 3.44 4.74 5.04 5.23 6.07

COMP_D 9703 4.97 0.35 3.43 4.78 4.97 5.24 5.70

COMP_F 9703 4.74 0.5 3.39 4.49 4.64 4.99 6.66

GOV 9703 55.66 30.14 1.34 26.76 65.24 81.71 97.19

SIZE 9703 8.54 1.35 3.52 7.65 8.49 9.42 11.6

LEV 9703 0.24 0.16 0.00 0.12 0.23 0.34 0.73

SALEG 9703 0.08 0.2 -0.45 -0.02 0.06 0.15 0.93

ROA 9703 0.14 0.08 -0.2 0.09 0.13 0.18 0.44

R&D 9703 2.62 5.53 0.00 0.00 0.13 2.56 35.99

GDP 9703 10.53 0.59 6.89 10.59 10.69 10.75 11.64

This table presents descriptive statistics of the main variables over the sample period. The sample is comprised of 9,703 observations from 50 countries over the 2006-2011 period.

27

Table 4. Pearson Correlation of the Main Regression Variables CSR ENV SOC COMP COMP_D COMP_F GOV SIZE LEV SALE_GR ROA R&D/S

ENV 0.9436

(0.00)

SOC 0.9376 0.7697

(0.00) (0.00)

COMP -0.1303 -0.1424 -0.1017

(0.00) (0.00) (0.00)

COMP_D -0.1544 -0.1578 -0.1321 0.957

(0.00) (0.00) (0.00) (0.00)

COMP_F 0.0494 0.0012 0.094 0.6329 0.4042

(0.00) (0.91) (0.00) (0.00) (0.00)

GOV 0.1874 0.0929 0.2639 0.3466 0.3506 0.278

(0.00) (0.00) (0.00) (0.00) (0.00) (0.00)

SIZE 0.4737 0.466 0.4242 -0.1196 -0.0972 -0.1541 0.0247

(0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.02)

LEV 0.0371 0.0208 0.0498 -0.0264 -0.0375 0.026 0.0485 0.0816

(0.00) (0.04) (0.00) (0.01) (0.00) (0.01) (0.00) (0.00)

SALEG -0.0761 -0.0891 -0.0532 0.0035 -0.0168 0.0661 0.0252 -0.0137 -0.0522

(0.00) (0.00) (0.00) (0.73) (0.10) (0.00) (0.01) (0.18) (0.00)

ROA -0.0413 -0.0872 0.012 0.0406 0.0509 0.0248 0.1065 -0.0732 -0.1712 0.1878

(0.00) (0.00) (0.24) (0.00) (0.00) (0.01) (0.00) (0.00) (0.00) (0.00)

R&D 0.0269 0.0301 0.0203 0.0439 0.069 -0.0512 0.0548 -0.1362 -0.1784 0.0221 -0.0493

(0.01) (0.00) (0.05) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.03) (0.00)

GDP -0.0268 -0.0074 -0.044 0.47 0.4931 0.2088 0.2878 -0.0173 0.0027 -0.0974 -0.0626 0.1102

(0.01) (0.46) (0.00) (0.00) (0.00) (0.00) (0.00) (0.09) (0.79) (0.00) (0.00) (0.00)

This table presents Pearson Correlation of the main variables over the sample period. The sample is comprised of 9,703 observations from 50 countries over the 2006-2011 period. The p-value of each correlation coefficient is given between parentheses.

28

Table 6. CSR and Competition

CSR ENV SOC

(1) (2) (3) COMP -10.2554

*** -11.9651

*** -8.5457

***

(-10.32) (-9.99) (-7.82)

GOV 0.6025***

0.5712***

0.6337***

(29.26) (24.85) (29.01)

SIZE 8.8725***

9.2080***

8.5369***

(28.17) (25.46) (26.00)

LEV 1.1506 0.1155 2.1856

(0.43) (0.04) (0.80)

SALEG -10.5515***

-11.0020***

-10.1010***

(-9.55) (-8.96) (-8.31)

ROA 16.8096***

9.0031* 24.6160

***

(3.76) (1.75) (5.33)

R&D 0.4736***

0.4114***

0.5358***

(5.78) (4.32) (6.54)

GDP 1.1348 3.8566 -1.5869

(0.50) (1.59) (-0.59)

CONSTANT -13.8659 -32.8446 5.1127

(-0.55) (-1.21) (0.17)

N 9703 9703 9703

adj. R2 0.534 0.502 0.486

Notes: This table reports results from OLS estimations, with dependent variables CSR, ENV and SOC. All regressions include (unreported) industry and country fixed effects, and the results are adjusted for firm level clusters. The full sample comprises 9,703 firm-year observations from 50 countries over the period 2006-2011. The appendix outlines definitions and data sources for all variables. Robust t-statistics are reported in parentheses. The superscripts asterisks ***, **, and * denote statistical significance at the 1%, 5%, and 10% levels, respectively.

29

Table 7. Panel A. CSR and Domestic Competition CSR CSR CSR CSR CSR CSR CSR CSR

(1) (2) (3) (4) (5) (6) (7) (8)

COMP_D -8.4967***

(-9.99)

INTENSITY_LOC -9.2081***

(-8.92)

MARKET_DOM -6.1861***

(-8.67)

ANTI_MON -7.1230***

(-9.30)

NO_PROC 0.4813*

(1.91)

NO_DAYS -0.0354

(-0.67)

AG_POL 0.6578

(0.55)

TAX_PROFITS -0.1470**

(-2.35)

GOV 0.5997***

0.6060***

0.6039***

0.6022***

0.6142***

0.6123***

0.6127***

0.6117***

(28.99) (29.47) (29.34) (29.17) (29.85) (29.69) (29.87) (29.76)

SIZE 8.8852***

8.8100***

8.8635***

8.8849***

8.7556***

8.7543***

8.7521***

8.7615***

(28.18) (27.99) (28.15) (28.18) (27.82) (27.84) (27.85) (27.86)

LEV 1.2108 1.0266 1.2040 1.3222 1.0672 1.0605 1.0540 1.0953

(0.46) (0.39) (0.45) (0.50) (0.40) (0.40) (0.40) (0.41)

SALEG -10.6674***

-10.4224***

-10.2209***

-10.1971***

-10.4121***

-10.4084***

-10.4040***

-10.3386***

(-9.65) (-9.39) (-9.20) (-9.20) (-9.31) (-9.31) (-9.30) (-9.23)

ROA 16.9379***

16.5606***

17.0386***

17.0817***

15.8928***

15.9530***

15.9401***

16.0353***

(3.79) (3.70) (3.81) (3.82) (3.55) (3.57) (3.56) (3.58)

R&D 0.4745***

0.4680***

0.4704***

0.4744***

0.4632***

0.4626***

0.4619***

0.4631***

(5.80) (5.72) (5.75) (5.79) (5.66) (5.66) (5.65) (5.66)

GDP 0.6658 -0.3301 -2.2523 -0.8073 -0.4967 -0.0270 -0.0633 -1.0173

(0.29) (-0.14) (-0.97) (-0.36) (-0.22) (-0.01) (-0.03) (-0.42)

CONSTANT -17.2349 2.6681 0.8615 -7.3338 -49.6488**

-53.5384**

-56.3645**

-35.6807

(-0.69) (0.11) (0.03) (-0.29) (-2.03) (-2.18) (-2.21) (-1.33)

N 9703 9703 9703 9703 9693 9693 9703 9693

adj. R2 0.534 0.533 0.533 0.534 0.530 0.530 0.530 0.530

30

Table 7. Panel B. CSR and Foreign Competition

CSR CSR CSR CSR CSR CSR CSR (1) (2) (3) (4) (5) (6) (7) COMP_F -1.8473 (-1.64) TRADE_BARRIERS -7.6540

***

(-9.29)

FOREIGN_OWN -7.5631***

(-7.97)

RULES_FDI -5.9538***

(-10.10)

CUSTOM_PROC -0.1220

(-0.09)

IMPORTS_GDP -0.0978**

(-2.15)

DUTY -0.5419***

(-5.85)

GOV 0.6152***

0.6064***

0.6046***

0.5973***

0.6201***

0.6116***

0.6112***

(29.49) (29.58) (29.42) (28.78) (29.12) (29.77) (29.82)

SIZE 8.7405***

8.8057***

8.8159***

8.9013***

8.6567***

8.7622***

8.7897***

(27.78) (28.01) (28.05) (28.20) (27.07) (27.85) (27.95)

LEV 1.0047 0.9770 0.9215 1.1481 1.2770 1.0533 1.0247

(0.38) (0.37) (0.35) (0.43) (0.47) (0.40) (0.39)

SALEG -10.3322***

-10.2741***

-10.2233***

-9.8204***

-10.3706***

-10.5462***

-9.6156***

(-9.21) (-9.28) (-9.21) (-8.88) (-8.81) (-9.42) (-8.35)

ROA 15.8152***

16.4194***

16.5627***

17.3457***

17.3554***

15.9598***

16.4343***

(3.54) (3.68) (3.70) (3.87) (3.73) (3.57) (3.67)

R&D 0.4610***

0.4657***

0.4660***

0.4737***

0.4640***

0.4627***

0.4635***

(5.64) (5.70) (5.70) (5.78) (5.41) (5.66) (5.67)

GDP 0.0548 1.2178 0.7181 2.8351 0.6065 -1.3859 7.3678***

(0.02) (0.54) (0.32) (1.25) (0.27) (-0.57) (2.95)

CONSTANT -45.7437* -25.1946 -18.3530 -54.4074

** -59.5246

** -36.8503 -131.0959

***

(-1.86) (-1.01) (-0.72) (-2.22) (-2.38) (-1.38) (-4.90)

N 9703 9703 9703 9703 8482 9703 9703

adj. R2 0.530 0.533 0.533 0.534 0.534 0.531 0.531

Notes: This table reports results from OLS estimations, with dependent variables CSR. All regressions include (unreported) industry and country fixed effects, and the results are adjusted for firm level clusters. The full sample comprises 9,703 firm-year observations from 50 countries over the period 2006-2011. The appendix outlines definitions and data sources for all variables. Robust t-statistics are reported in parentheses. The superscripts asterisks ***, **, and * denote statistical significance at the 1%, 5%, and 10% levels, respectively.

31

Table 8. CSR and Competition, before and after the Financial Crisis

Before Crisis After Crisis 2006 2007 2008 2009 2010 2011

CSR CSR CSR CSR CSR CSR CSR CSR

(1) (2) (3) (4) (5) (6) (7) (8) COMP -12.1029*** -5.3046*** -13.8107** -29.1718*** -36.9901*** -20.8932*** -21.2357*** 0.7627 (-4.13) (-3.77) (-1.97) (-4.91) (-6.27) (-3.01) (-3.14) (0.11) GOV 0.5820*** 0.6201*** 0.5454*** 0.5833*** 0.6183*** 0.5857*** 0.6634*** 0.6037*** (21.35) (27.42) (14.24) (16.49) (18.91) (21.91) (23.17) (19.66) SIZE 9.8654*** 8.2151*** 10.0992*** 10.5742*** 9.3151*** 8.8220*** 8.2526*** 7.4833*** (25.41) (25.22) (20.26) (22.90) (21.51) (22.07) (22.67) (20.15) LEV 0.8693 1.5920 -2.7778 1.4237 1.2029 3.9202 0.1696 0.4491 (0.27) (0.58) (-0.66) (0.36) (0.35) (1.25) (0.06) (0.13) SALEG -10.6534*** -8.9903*** -8.2554*** -8.0077** -14.7578*** -15.4632*** -6.9054*** -9.0912*** (-5.52) (-6.80) (-2.60) (-2.47) (-5.20) (-5.37) (-2.84) (-3.06) ROA 21.3301*** 14.6167*** 11.0415 24.3322*** 29.0531*** 19.5693*** 11.8103** 13.3524** (3.85) (2.99) (1.46) (3.22) (4.69) (3.18) (2.07) (2.12) R&D 0.5201*** 0.4420*** 0.5168*** 0.5832*** 0.4718*** 0.5192*** 0.4475*** 0.3717*** (5.57) (5.14) (4.86) (4.95) (4.34) (5.70) (4.62) (3.55) GDP 8.8342*** 4.0310* -35.6148*** 6.5689** 14.2719*** 8.3633*** -2.0989 -27.0879*** (5.44) (1.67) (-2.79) (2.28) (5.48) (3.24) (-0.91) (-15.11) CONSTANT -94.3211*** -66.6653** 398.1827*** 12.8645 -15.7491 -32.3123** 78.7500*** 242.3547*** (-9.50) (-2.42) (3.05) (0.56) (-1.16) (-2.27) (4.49) (6.17) N 4227 5476 1221 1365 1641 1877 2024 1575 adj. R2 0.518 0.543 0.509 0.516 0.521 0.542 0.530 0.536

Notes: This table reports results from OLS estimations, with dependent variable CSR, for every year in our sample. All regressions include (unreported) industry and country fixed effects, and the results are adjusted for firm level clusters. The full sample comprises 9,703 firm-year observations from 50 countries over the period 2006-2011. The appendix outlines definitions and data sources for all variables. Robust t-statistics are reported in parentheses. The superscripts asterisks ***, **, and * denote statistical significance at the 1%, 5%, and 10% levels, respectively.

32

Table 9. Robustness to Sample Composition Wo/USA Wo/UK Wo/JPN CSR CSR CSR

(1) (2) (3)

COMP -7.0597*** -10.2460*** -9.8679*** (-4.14) (-10.03) (-9.51) GOV 0.5601*** 0.5997*** 0.5830*** (23.82) (27.03) (28.44) SIZE 7.6354*** 9.3186*** 8.4787*** (19.36) (27.38) (26.13) LEV 1.7380 -0.5018 -1.6072 (0.50) (-0.17) (-0.61) SALEG -9.3425*** -10.9161*** -9.8173*** (-6.98) (-8.83) (-8.72) ROA 17.9321*** 18.7961*** 12.2299*** (3.15) (3.88) (2.69) R&D 0.3808*** 0.5029*** 0.3700*** (3.11) (5.70) (4.42) GDP 0.9589 -3.5512 0.2655 (0.42) (-1.17) (0.10) CONSTANT -16.1704 33.9142 -1.8054 (-0.61) (1.03) (-0.06) N 6442 8630 8013 adj. R2 0.500 0.533 0.556

Notes: This table reports results from regression estimations using various subsamples with dependent variables CSR. All regressions include (unreported) industry and country fixed effects, and the results are adjusted for firm level clusters. The full sample comprises 9,703 firm-year observations from 50 countries over the period 2006-2011. The appendix outlines definitions and data sources for all variables. Robust t-statistics are reported in parentheses. The superscripts asterisks ***, **, and * denote statistical significance at the 1%, 5%, and 10% levels, respectively.

33

Table 10. Robustness to Methodology AlternativeFE WLS Instrumental Demeaned Detrended CSR CSR CSR CSR_MEAN CSR_RESID

(1) (2) (3) (4) (5)

COMP -8.0367*** -11.7059*** -13.7235*** -7.1059*** -10.2657*** (-5.14) (-14.03) (-6.66) (-4.73) (-7.09) GOV 0.5998*** 0.2214*** 0.5953*** 0.0277 0.3028*** (28.39) (24.86) (46.98) (1.51) (17.54) SIZE 8.8957*** 9.8798*** 8.9065*** 6.9313*** 9.6550*** (28.18) (52.79) (50.43) (11.10) (27.89) LEV 0.9600 -1.1031 1.4725 10.2496* 2.4654 (0.36) (-0.71) (1.09) (1.85) (0.77) SALEG -9.7799*** -11.4569*** -10.7420*** 12.3810 -12.9951*** (-8.09) (-9.05) (-10.20) (1.60) (-9.48) ROA 17.1657*** -3.9323 17.2324*** -23.2149* 5.8656 (3.82) (-1.26) (6.50) (-1.78) (1.03) R&D 0.4746*** 0.4596*** 0.4799*** 0.1971 0.4074*** (5.79) (10.03) (11.79) (1.22) (4.42) GDP 4.5523* -1.9951*** 1.6293 0.5999 -1.1923 (1.76) (-4.03) (0.41) (0.66) (-1.35) CONSTANT -63.7534** 41.3889*** -1.1398 26.0338** 0.0000 (-2.15) (7.60) (-0.03) (2.01) (0.00) N 9703 9703 9629 9703 9703 adj. R2 0.534 0.291 0.534 0.153 0.319

Notes: This table reports results from regression estimations using various methodologies, with dependent variables CSR. The full sample comprises 9,703 firm-year observations from 50 countries over the period 2006-2011. The appendix outlines definitions and data sources for all variables. Robust t-statistics are reported in parentheses. The superscripts asterisks ***, **, and * denote statistical significance at the 1%, 5%, and 10% levels, respectively.

34

Table 10. Industry Level Concentration Measures CSR CSR CSR CSR CSR

(1) (2) (3) (4) (5) HHI -3.7578 (-1.38) FIRST_FOUR -18.3823*** (-4.65) DIFF 4.2034*** (2.62) MARKET 4.9575 (1.21) ENTCOST -6.7265 (-0.94)

GOV 0.6128*** 0.6070*** 0.6106*** 0.6125*** 0.6132***

(29.93) (29.60) (29.74) (29.94) (29.93)

SIZE 8.7601*** 8.8240*** 8.8077*** 8.7061*** 8.7729***

(27.88) (28.12) (27.98) (27.48) (27.83)

LEV 1.0933 0.4551 0.9954 1.0738 1.0312

(0.41) (0.17) (0.38) (0.41) (0.39)

SALEG -10.4510*** -10.4772*** -10.6024*** -10.4752*** -10.4402***

(-9.38) (-9.46) (-9.49) (-9.40) (-9.35)

ROA 15.8823*** 15.5925*** 15.0587*** 15.7885*** 16.0753***

(3.55) (3.52) (3.37) (3.53) (3.59)

R&D 0.4650*** 0.4603*** 0.4641*** 0.4654*** 0.4622***

(5.69) (5.68) (5.68) (5.67) (5.65)

GDP 0.0430 0.2629 -0.1184 -0.1611 -0.0489

(0.02) (0.12) (-0.05) (-0.07) (-0.02)

CONSTANT -53.4408** -42.5085* -58.3857** -52.5923** -53.2668**

(-2.17) (-1.72) (-2.37) (-2.14) (-2.16) N 9703 9703 9703 9703 9703 adj. R2 0.531 0.534 0.532 0.531 0.531

Notes: This table reports results from OLS estimations, with dependent variables CSR. All regressions include (unreported) industry and country fixed effects, and the results are adjusted for firm level clusters. The full sample comprises 9,703 firm-year observations from 50 countries over the period 2006-2011. The appendix outlines definitions and data sources for all variables. Robust t-statistics are reported in parentheses. The superscripts asterisks ***, **, and * denote statistical significance at the 1%, 5%, and 10% levels, respectively.