An empirical analysis of the strategic use of corporate social responsibility

Recent theories of the strategic use of corporate social responsibility (CSR) emphasise the role of information asymmetry and how CSR is likely to be matrixed into a firm’s product differentiation strategy.

This paper constitutes the first empirical test of these theories. Specifically, the authors focus on the importance of the type of product or service sold by a firm as a determinant of management’s decision to invest in CSR.

Consistent with the theories, the authors find that companies selling durable experience goods or credence services are much more likely than comparable firms to be socially responsible.

At the margin, the results imply that firms selling a credence service (e.g., financial services) are about 23 per cent more likely to opt for CSR. Similarly, a firm producing durable experience goods, such as automobiles or software, is about 15 per cent more likely to be socially responsible.

The results also suggest that firms selling experience services or non-durable experience goods are more likely to adopt CSR, although the nature and strength of this relationship is likely depend on the type of CSR the firm wishes to engage in (e.g., “public” CSR or “across-the board” CSR).

The evidence presented here supports a view that is consistent with theories of strategic CSR and rational, profit-seeking management decision-making. Others may view the same evidence as proof that CSR is a “fraud” or “smokescreen” to disguise the same behavior, which they abhor.

However, the authors give the following caveats to the results:

• empirical analysis is based on a single cross section. It would be useful to test theories of strategic CSR using panel data
• econometric analysis of the study is subject to omitted variables bias
• it is difficult to classify a company cleanly into selling search, experience or credence goods and service