CSR, Industry Competition, and Firm Performance: a Global Perspective

There is a mounting focus on firms’ social and environmental responsibilities and performance, both in academic literature, and in wider society. Firms are thus expected to develop the necessary capabilities to deal with complicated issues of ethics, governance, employee relations, environmental damage, and so forth. Yet, the body of evidence for the firm performance effects of developing these capabilities is weak. Furthermore, industry-level differences in competition are seldom accounted for. In the context of our existing SDC-supported project on hypercompetition, we have documented systematic differences in the levels of competition across industries and continents (paper currently under second round of reviews for Industry and Innovation). This leads to a provocative question: Is corporate responsibility a luxury afforded only by firms facing low competitive pressure in their industry? With this new application, we are proposing two innovations. Firstly, a radically new way of measuring the firm performance effects of possessing capabilities linked to corporate social responsibility (CSR). Rather than measuring a single dimension of CSR, we propose to measure multiple dimensions (environmental, social, governance), as embodied in so-called ESG measures, and study how these interact with each other. Secondly, we propose a way to control for the levels of competitive pressure at the industry level.