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Competition and Institutional Drivers of Corporate Social Performance

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Abstract

Research into corporate social performance (CSP) recently shifted to studying its political economic dimensions. In this paper, we test the influence of price and technological competition and two institutional factors, mandatory reporting and monitoring by non-governmental organizations (NGOs) and media, on CSP. Combining survey data with CSP ratings from Sustainalytics, we find that technological competition, monitoring by NGOs and media and mandatory CSP reporting foster CSP. However, price competition is not found to significantly influence CSP. This indicates that there is no support for the existence of a trade-off between anti-trust policy and CSP. Furthermore, our findings imply that governments can stimulate CSP by making CSP reporting mandatory.

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Notes

  1. See: http://ec.europa.eu/environment/resource_efficiency/news/up-to-date_news/08032013_en.htm.

  2. Scott (2001) distinguishes three types of institutions: regulatory, normative and cognitive. Regulative elements include rules, sanctions and regulations which tend to codify socially accepted corporate behavior. Normative elements are the values and social norms that define the ‘rules of the game’. Cognitive elements include cultural values, ideology and identity.

  3. See: http://ec.europa.eu/environment/resource_efficiency/news/up-to-date_news/08032013_en.htm.

  4. Detailed reports on these statistical analyses are available upon request with the authors.

  5. A list of all general and sector specific indicators is available upon request with the authors.

  6. Several studies show that self-reported behavior and actual behavior are strongly correlated (see, Beaver and Prince 2004).

  7. To further control for possible selection bias, we also used the Heckman two-stage estimation procedure (Heckman 1979; Lee 1983). In the first step, a selection equation was estimated explaining the response by type of country, sector, company size, financial return and long term debt-equity ratio on a sample of 968 observations, assuming that more profitable companies have more resources to free manpower to fill in surveys. From the regression results, the inverse Mills ratio was calculated. In all regressions it appeared to be highly insignificant (standardized coefficient \(=\) 0.009; p value \(=\) 0.58), indicating no selection bias in the estimation results. Since there is no indication of selection bias and since the number of observations declines from 205 to 166 if we include the inverse Mills ratio (which is due to missing values for financial return and long term debt-equity ratio for 37 companies), we dropped the inverse Mills ratio in the final analysis.

  8. S&P Capital IQ is a multinational financial information provider headquartered in New York City, and a division of Standard & Poor’s. It covers about 88,000 companies globally with over 5000 unique financial data items and 2500 industry-specific items.

  9. We also experimented with six cultural dimensions as developed by Hofstede (2015) (power distance, masculinity, individualism, long-term orientation, uncertainty avoidance, indulgence) to control for cultural differences (e.g. the cognitive dimension of institutions). We found, however, that none of them is significant if country dummies are also included in the regression analysis. If we drop all country dummies, only two dimensions of the Hofstede index become significant. From this we conclude that country dummies more effectively control for national differences than the Hofstede indices. Apparently there are other country-specific influences that affect CSP, besides cultural dimensions.

  10. For price competition squared, we used centering (i.e., subtracting their means before creating the powers or the products), which is a usual method to diminish multicorrelation with price competition.

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Acknowledgments

This work was supported by the European Union under the seventh framework program theme SSH-2009-2.1.3.

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Authors and Affiliations

  1. Department of Economics/Department of Philosophy, CentER/Tilburg Sustainability Center, Tilburg University, P.O. Box 90153, 5000 LE, Tilburg, The Netherlands

    Johan Graafland

  2. Afdeling Risicomanagement Toezicht, De Nederlandsche Bank, Postbus 98, 1000 AB, Amsterdam, The Netherlands

    Hugo Smid

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  1. Johan Graafland
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Correspondence to Johan Graafland.

Appendix

Appendix

See Table 4.

Table 4 Tests on reliability of competition measures
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Graafland, J., Smid, H. Competition and Institutional Drivers of Corporate Social Performance. De Economist 163, 303–322 (2015). https://doi.org/10.1007/s10645-015-9255-y

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