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Presentation Outline
1) Critique of existing empirical studies of the effect of CSR on firm performance 2) CSR - Supply and Demand Framework 3) Hypotheses pertaining to the provision of CSR attributes across firms/industries 4) Strategic Implications of CSR Using preemptive strategies that rely on CSR reputation
CSR: Definition
Corporate Social Responsibility - Actions taken by a firm that appear to further some social cause, beyond the interests of the firm and that which is required by law and ethics. Examples: goods and services with social characteristics (e.g., organic produce) or managerial practices that promote a social objective, such as progressive HRM practices
Supply of CSR
The provision of CSR characteristics entails higher costs because firms must devote additional resources to generate these characteristics (see Appendix II)
Market Outcome
As a general matter, CSR neither helps nor hurts financial performance CSR could be an integral part of a firms differentiation strategy. Thus, it needs to be considered as a form of strategic investment Cost/Benefit Analysis is useful
Preemptive Strategies: Using CSR to Block Alternative Strategies and Resources (cont.) Firm A may attempt block the use of the cheaper foreign labor through the use of CSR tactics - by inducing consumers to boycott rivals - by lobbying for trade restrictions or local content requirements
Preemptive Strategies: Using CSR to Block Alternative Strategies and Resources (cont.) If successful, blocking the use of substitute strategies or resources will allow Firm A to sustain a competitive advantage or to protect competitive parity (prevent a competitor from creating an advantage). (And will also further some social goal) However, blocking requires resources (e.g., advertising, lobbying), so this again suggests the need for cost/benefit analysis.
Preemptive Strategies: Using CSR to Block Alternative Strategies and Resources (cont.)
Success of such blocking strategies depends on the CSR reputation of Firm A (a credible motive). a reputation for CSR is valuable in the market Caveat: Such reputations are costly to develop and fragile (can be damaged easily).
Appendices
Not a concern when the omitted variable is uncorrelated with included regressor However, dozens of firm and industry-level studies report a strong positive correlation between R&D and proxies for long-term firm performance, that is: corr (R&D, Performance) > 0
Regression Results of Equations (1) and (2) (N = 524 firms, Standard Errors in Parentheses)
Dependent Variable: Performance Coefficient on CSR Coefficient on R&D Equation (1) .141*** (.052) Equation (2) -.062 (.059) .263*** (.050) .10 .29
Note: regressions include controls for size, risk, advertising, and industry effects
where
quantity of the good with CSR attribute the price of the good with CSR attribute quantity of the good without CSR attribute the price of the good without CSR attribute advertising income tastes and preferences demographics
The provision of CSR characteristics entails higher costs because firms must devote additional resources to generate these characteristics