Product Market Competition and Corporate Social Responsibility Activities

Abstract

We investigate the link between industry competitiveness and corporate social performance. Fernandez and Santalo (2010) show that firms in more competitive environments have better social ratings, consistent with the strategic purpose of social initiatives. We show that competition alone is not a sufficient mechanism to improve all dimensions of corporate social responsibility. Using the Hoberg and Phillips' fitted HHI as a proxy for competition, our results suggest that competitive pressure, on average, leads to an increase in social strengths but not necessarily to a decrease in social concerns (1). We do find a positive association between overall social performance and product market competition but this relationship does not hold with all dimensions of social responsibility. More specifically, the positive impact of competition is significant for both shareholder-and employee-related social actions (corporate governance, diversity, employee relations, human rights) but is not verified for actions affecting other stakeholders (community, environment) (2). In more competitive environments, product quality and safety concerns are decreased, but product strengths are not significantly increased (3). Interestingly, concerns with alcohol, gambling and tobacco do not appear to be affected by competition whereas involvement in firearms, military and nuclear power is reduced under competitive pressure (4).