This article investigates the relationship between corporate social responsibility (CSR) and investment efficiency from a strategic perspective. Taking into account the competitive strategy between firms, we proposed an adjusted competitive strategy measure and fitted CSR with a competitive strategy such as strategic CSR and examined the impact of competitive strategy on CSR and the sensitivity of investment to free cash flow. The results show that firms engage in CSR strategically. The stronger the strategic substitutes in which a firm competes, the more likely it is to engage in CSR activities. The weaker the strategic substitutes and complements in which a firm competes, the better its CSR performance. However, strategic CSR and corporate strategy do not have a synergistic effect in mitigating overinvestment. The results suggest that strategic CSR performance eliminates the sensitivity of investment to free cash flow. CSR can be a powerful tool to link corporate strategy and social sustainability, which has the potential to create a win-win situation for both the firm and society.
BartelsJ.SchramadeW. (2024). Investing in human rights: Overcoming the human rights data problem. Journal of Sustainable Finance and Investment, 14(1), 199–219. https://doi.org/10.1080/20430795.2022.2053943
6.
BenlemlihM.BitarM. (2018). Corporate social responsibility and investment efficiency. Journal of Business Ethics, 148(3), 647–671. https://doi.org/10.1007/s10551-016-3020-2
7.
BhandariA.JavakhadzeD. (2017). Corporate social responsibility and capital allocation efficiency. Journal of Corporate Finance, 43, 354–377.
8.
BranderJ. A.LewisT. R. (1986). Oligopoly and financial structure: The limited liability effect. American Economic Review, 76(5), 956–970.
CaiY.PanC. H.StatmanM. (2016). Why do countries matter so much in corporate social performance?Journal of Corporate Finance, 41, 591–609.
11.
CamilleriM. A. (2017). Corporate social responsibility in times of crisis (IdowuS. O.VertigansS.Schiopoiu BurleaA., Eds.). Springer. https://doi.org/10.1007/978-3-319-52839-7
12.
ChatterjiA. K.LevineD. I.ToffelM. W. (2009). How well do social ratings actually measure corporate social responsibility?Journal of Economics & Management Strategy, 18(1), 125–169. https://doi.org/10.1111/j.1530-9134.2009.00210.x
13.
ChenS.MiaoB.ShevlinT. (2015). A new measure of disclosure quality: The level of disaggregation of accounting data in annual reports. Journal of Accounting Research, 53(5), 1017–1054.
14.
CookK. A.RomiA. M.SánchezD.SánchezJ. M. (2019). The influence of corporate social responsibility on investment efficiency and innovation. Journal of Business Finance and Accounting, 46(3–4), 494–537. https://doi.org/10.1111/jbfa.12360
15.
DavisK.BlomstromR. L. (1966). Business and its environment (1st ed.). McGraw-Hill.
DhaliwalD.LiO. Z.TsangA.YangY. G. (2014). Corporate social responsibility disclosure and the cost of equity capital: The roles of stakeholder orientation and financial transparency. Journal of Accounting and Public Policy, 33(4), 328–355. https://doi.org/10.1016/j.jaccpubpol.2014.04.006
18.
DiMaggioP. J.PowellW. W. (1983). The Iron Cage revisited: Institutional isomorphism and collective rationality in organizational fields. American Sociological Review, 48(2), 147. https://doi.org/10.2307/2095101
19.
DowlingJ.PfefferJ. (1975). Organizational legitimacy: Social values and organizational behavior. Pacific Sociological Review, 18(1), 122–136. https://doi.org/10.2307/1388226
20.
DupireM.M’ZaliB. (2018). CSR strategies in response to competitive pressures. Journal of Business Ethics, 148(3), 603–623.
21.
ErhemjamtsO.LiQ.VenkateswaranA. (2013). Corporate social responsibility and its impact on firms’ investment policy, organizational structure, and performance. Journal of Business Ethics, 118, 395–412. https://doi.org/10.1007/s10551-012-1594-x
22.
FazzariS. M.HubbardR. G.PetersenB. C.BlinderA. S.PoterbaJ. M. (1988). Financing constraints and corporate investment. Brookings Papers on Economic Activity, 1988(1), 141–206. https://doi.org/10.2307/2534426
FlammerC. (2015). Does product market competition foster corporate social responsibility? Evidence from trade liberalization. Strategic Management Journal, 36(10), 1469–1485. https://doi.org/10.1002/smj.2307
25.
FlammerC.IoannouI. (2021). Strategic management during the financial crisis: How firms adjust their strategic investments in response to credit market disruptions. Strategic Management Journal, 42(7), 1275–1298. https://doi.org/10.1002/smj.3265
26.
FombrunC. J.ShanleyM. T. (1990). What’s in a name? Reputation building and corporate strategy. Academy of Management Journal, 33, 233–258. https://doi.org/10.5465/256324
27.
FreemanR. E. (1984). Strategic management: A stakeholder approach. Pitman Publishers Series, Cambridge University Press.
28.
FreemanR. E.HarrisonJ. S.WicksA. C.ParmarB. L.de ColleS. (2010). Stakeholder theory: The state of the art. Cambridge University Press.
29.
FriedmanM. (1970). A Friedman doctrine—The social responsibility of business is to increase its profits. The New York Times Magazine, 6(33), 122–124.
30.
GhoulS.El GuedhamiO.KwokC. C. Y.MishraD. R. (2011). Does corporate social responsibility affect the cost of capital?Journal of Banking & Finance, 35(9), 2388–2406. https://doi.org/10.1016/j.jbankfin.2011.02.007
GompersP.IshiiJ.MetrickA. (2003). Corporate governance and equity prices. The Quarterly Journal of Economics, 118(1), 107–155.
33.
GreenwaldB.StiglitzJ. E.WeissA. (1984). Informational imperfections in the capital market and macroeconomic fluctuations. The American Economic Review, 74(2), 194–199.
34.
GuarigliaA.YangJ. (2016). A balancing act: Managing financial constraints and agency costs to minimize investment inefficiency in the Chinese market. Journal of Corporate Finance, 36, 111–130.
35.
HobergG.PhillipsG. (2016). Text-based network industries and endogenous product differentiation. Journal of Political Economy, 124(5), 1423–1465. https://doi.org/10.1086/688176
36.
HustedB. W.JamaliD.SaffarW. (2016). Near and dear? The role of location in CSR engagement. Strategic Management Journal, 37(10), 2050–2070.
37.
JensenM. C.MecklingW. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360.
38.
KhediriK. B. (2021). CSR and investment efficiency in Western European countries. Corporate Social Responsibility and Environmental Management, 28(6), 1769–1784. https://doi.org/10.1002/csr.2151
KimY.ParkM. S.WierB. (2012). Is earnings quality associated with corporate social responsibility?The Accounting Review, 87(3), 761–796. https://doi.org/10.2308/accr-10209
41.
KimY.StatmanM. (2012). Do corporations invest enough in environmental responsibility?Journal of Business Ethics, 105, 115–129. https://doi.org/10.1007/s10551-011-0954-2
42.
KitzmuellerM.ShimshackJ. (2012). Economic perspectives on corporate social responsibility. Journal of Economic Literature, 50(1), 51–84.
43.
LeeS.KimB.HamS. (2018). Strategic CSR for airlines: Does materiality matter?International Journal of Contemporary Hospitality Management, 30(12), 3592–3608. https://doi.org/10.1108/IJCHM-10-2017-0697
LinY.-E.LiY.-W.YuanChengT.LamK. (2021). Corporate social responsibility and investment efficiency: Does business strategy matter?International Review of Financial Analysis, 73, 101585.
46.
LiuA. Z.LiuA. X.WangR.XuS. X. (2020). Too much of a good thing? The boomerang effect of firms’ investments on corporate social responsibility during product recalls. Journal of Management Studies, 57(8), 1437–1472. https://doi.org/10.1111/joms.12525
47.
LiuS.WuD. (2016). Competing by conducting good deeds: The peer effect of corporate social responsibility. Finance Research Letters, 16, 47–54.
48.
LuoX.BhattacharyaC. B. (2009). The debate over doing good: Corporate social performance, strategic marketing levers, and firm-idiosyncratic risk. Journal of Marketing, 73(6), 198–213. https://doi.org/10.1509/jmkg.73.6.198
49.
LyandresE. (2006). Capital structure and interaction among firms in output markets: Theory and evidence. Journal of Business, 79(5), 2381–2421. https://doi.org/10.1086/505239
50.
MačaitytėI.VirbašiūtėG. (2018). Volkswagen emission scandal and corporate social responsibility: A case study. Business Ethics and Leadership, 2(1), 6–13. https://doi.org/10.21272/bel.2(1).6-13.2018
51.
ManasakisC.MitrokostasE.PetrakisE. (2018). Strategic corporate social responsibility by a multinational firm. Review of International Economics, 26(3), 709–720. https://doi.org/10.1111/roie.12320
52.
MargolisJ. D.WalshJ. P. (2003). Misery loves companies: Rethinking social initiatives by business. Administrative Science Quarterly, 42(8), 268–305.
53.
MattenD.CraneA. (2005). Corporate citizenship: Toward an extended theoretical conceptualization. The Academy of Management Review, 30(1), 166–179.
54.
MizikN.JacobsonR. (2003). Trading off between value creation and value appropriation: The financial implications of shifts in strategic emphasis. Journal of Marketing, 67(1), 63–76. https://doi.org/10.1509/jmkg.67.1.63.185
55.
MoserD. V.MartinP. R. (2012). A broader perspective on corporate social responsibility research in accounting. The Accounting Review, 87(3), 797–806.
56.
MyersS. C.MajlufN. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics, 13(2), 187–221. https://doi.org/10.1016/0304-405X(84)90023-0
57.
OrazalinN.BaydauletovM. (2020). Corporate social responsibility strategy and corporate environmental and social performance: The moderating role of board gender diversity. Corporate Social Responsibility and Environmental Management, 27(4), 1664–1676.
58.
PanwarR.NybakkE.HansenE.PinkseJ. (2016). The effect of small firms’ competitive strategies on their community and environmental engagement. Journal of Cleaner Production, 129, 578–585.
59.
ParkK.YangI.YangT. (2017). The peer-firm effect on firm’s investment decisions. North American Journal of Economics and Finance, 40, 178–199.
60.
PorterM. E.KramerM. R. (2006). Strategy and society: The link between competitive advantage and corporate social responsibility. Harvard Business Review, 84(12), 78–92.
61.
PorterM. E.KramerM. R. (2011). Creating shared value. Harvard Business Review, 89(1–2), 62–77.
62.
QianQ. J.ZhuJ. L. (2018). Return to invested capital and the performance of mergers and acquisitions. Management Science, 64(10), 4818–4834. https://doi.org/10.1287/mnsc.2017.2766
63.
SaccoD.SchmutzlerA. (2011). Is there a U-shaped relation between competition and investment?International Journal of Industrial Organization, 29(1), 65–73.
64.
SametM.JarbouiA. (2017). How does corporate social responsibility contribute to investment efficiency?Journal of Multinational Financial Management, 40, 33–46. https://doi.org/10.1016/j.mulfin.2017.05.007
65.
ScharfsteinD. (1988). Product-market competition and managerial slack. The RAND Journal of Economics, 19(1), 147–155.
66.
ServaesH.TamayoA. (2013). The impact of corporate social responsibility on firm value: The role of customer awareness. Management Science, 59(5), 1045–1061. https://doi.org/10.1287/mnsc.1120.1630
67.
ShaverJ. M. (2005). Testing for mediating variables in management research: Concerns, implications, and alternative strategies. Journal of Management, 31(3), 330–353.
68.
ShleiferA. V. R. W. (1997). A survey of corporate governance. Journal of Finance, 52(4), 737–783.
69.
StarksL. T. (2023). Presidential address: Sustainable finance and ESG issues—value versus values. The Journal of Finance, 78(4), 1837–1872. https://doi.org/10.1111/jofi.13255
70.
SundaramA. K.JohnT. A.JohnK. (1996). An empirical analysis of strategic competition and firm values The case of R&D competition. Journal of Financial Economics, 40, 459–486. https://doi.org/10.1016/0304-405X(95)00853-7
71.
WangC.BrabenecT.GaoP.TangZ. (2021). The business strategy, competitive advantage and financial strategy: A perspective from corporate maturity mismatched investment. Journal of Competitiveness, 13(1), 164–181.
72.
WangZ.LuW.LiuM. (2021). Corporate social responsibility overinvestment in mergers and acquisitions. International Review of Financial Analysis, 78(1), 101944. https://doi.org/10.1016/j.irfa.2021.101944
73.
ZhongM.GaoL. (2017). Does corporate social responsibility disclosure improve firm investment efficiency? Evidence from China. Review of Accounting and Finance, 16(3), 348–365. https://doi.org/10.1108/RAF-06-2016-0095
