Competing by conducting good deeds: The peer effect of corporate social responsibility

How do firms respond to their competitors' corporate social responsibility (CSR) behavior? We exploit a text-based definition for industry peers to show that the CSR behavior of firms is positively affected by the CSR level of their competitors. The relationship is robust after controlling for firm fixed effects, industry trend, and geographical trend. In addition, the CSR level in turn increases firm value, particularly for firms in highly competitive industries. Taken together, the evidence suggests that a firm's CSR policy is shaped by the peer effect, and managers can influence firm value through CSR behavior.