Keeping up with the Joneses: The role of investee peers corporate environmental responsibility

Abstract

Scholars have investigated the industry peer effect of corporate social responsibility (CSR). Borrowing from the awareness-motivation-capability (AMC) framework from competitive dynamics literature, we shift attention to focus on an important but neglected peer-investee peers-and argue that the corporate environmental responsibility (CER) of investee peers positively affects a focal firm's CER. Using data from Chinese listed firms from 2008 to 2018, we find that firms invest more on CER in response to increasing CER investment by investee peer firms (more awareness). This relationship is further affected by the firm's motivation (when the common shareholder is a foreign investor) and ability (when the focal firm's financial performance is high) to respond to competitive threats and tensions from investee peers. Our study contributes to the literature on CSR (specifically CER) by introducing the role of investee peers and extending the AMC framework to the CER literature.

The Sectoral and Regional Peer Influences on Heavy-Pollution Corporate Environmental, Social, and Governance Performance

“…The results of the SAR model, as shown in Section 4.2, are compatible with the conclusions of Li and Wang (2022) [22], where corporate ESG or CSR performance has a local peer effect among nearby firms in the same region. Consistent with Liu and Wu (2016) and Dong et al (2023) [21,23], we also observe that corporate ESG performance has a significant industry peer effect. Apart from the views of geography or industry, we further consider the peer effect of corporate ESG performance within the same product market.…”

“…Li and Wang (2022) argue that local CSR comovement is mainly driven by a firm's incentives to access financing [22]. Dong et al (2023) suggest that the industry peer effect of corporate social responsibility is affected by a firm's motivation (when the common shareholder is a foreign investor) and ability (when the focal firm's financial performance is high) to respond to competitive threats and tensions from investee peers [23]. However, we focus more on the indirect effects of core explanatory variables in order to verify whether corporate ESG performance is changed by the peer effects in three various dimensions.…”

“…Corporate ESG performance can help to accumulate reputation capital, convey positive signals, and enhance market trust. Corporations pursue longterm interests and future development, which directly leads them to implement the same positivity in corporate ESG performance with their peers to maintain their reputation and competitiveness (Li and Wang (2022), Dong et al ( 2023)) [22,23]. Moreover, the quality of signals, that is, the informativeness of corporate disclosed information, for example, some related features about corporate ESG performance, can also heavily draw attention from stakeholders and competitors, thereby affecting corporate profits (Zahid et al ( 2023)) [33].…”

“…Liu and Wu (2016) empirically find that the CSR behavior of firms is positively impacted by the CSR level of industry peers [21]. Li and Wang (2022) and Dong et al (2023) obtain the results that corporate social responsibility has significant local and industry peer effects, respectively [22,23]. Based on these studies, we employ the spatial effect decomposition in the SDM model to further detect more external influence factors of corporate ESG performance, which are the peer indirect effects of certain characteristics from other counterparts.…”