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Motivating CSR Investment and Social Impact through Relative Performance Information

Sat, October 15, 1:30 to 3:00pm, TBA

Abstract

Firms may derive benefits from greater corporate social responsibility (CSR) performance, such as decreased cost of capital and increased brand loyalty from customers. Despite this, firms often struggle to motivate managers’ CSR performance, and little attention has been paid to how performance evaluation mechanisms can assist in this effort. We seek to fill this gap by examining the effects of relative performance information (RPI) on managers’ risky CSR investment decisions. As compared to when no RPI is provided, we find that providing RPI based on the size or impact rate (i.e., social rate of return) of CSR investments improves performance on the ranked dimension, and that this effect is greater in more risk-seeking managers. Moreover, the positive performance effects of RPI are not associated with a corresponding decrease in performance on unranked dimensions. We also find that providing both types of RPI separately may lead to similar performance as providing just one type. Finally, we find that providing RPI based on a single composite measure that combines performance dimensions leads to the greatest performance along each dimension. Process evidence suggests that the positive effects of composite RPI may stem in part from decreased difficulty in processing relative performance feedback. Our study contributes to research and practice by identifying how firms can use RPI to motivate larger, more impactful CSR investments, and by highlighting the role that managers’ risk preferences play in these decisions.

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