Should firms always invest in corporate social responsibility? Whether, when, and how?
Chatterjee, Prabirendra (2015) Should firms always invest in corporate social responsibility? Whether, when, and how? [Working Paper / Technical Report] Sabanci University ID:UNSPECIFIED
Firms in various markets such as health care, financial services, software, consumer goods etc. spend significant amount of money on corporate social responsibility (CSR) activities. The literature suggests that consumers take into consideration firmsí CSR activities when making purchase decisions and this leads to either an increase in willingness to pay or an increase in purchase intention. Unfortunately, notwithstanding its strategic beneÖts, the empirical Öndings regarding the impact of CSR on firms financials are mixed. In this paper we explore when and why investing in CSR can have positive or negative impact on firm's profitability. In doing so we model two types of CSR (i.e., company ability relevant CSR (CSR-CA) and company ability irrelevant CSR (CSR-NCA)) and allow firms to choose which one to pursue if they decide to invest in CSR, and incorporate the indirect effect of CSR through contrast effect (that can be positive or negative) on consumersíutility, which has been ignored by the extant literature. Our analysis reveals the conditions under which it is optimal to invest in CSR and of what type. Then, we extend our analysis by investigating whether being the first mover in investing in CSR increases the profitability and whether competitively advantaged (disadvantaged) firm benefits more from CSR.
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