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Role of Strategic Interactions in Corporate Sustainability Decisions: An Empirical Investigation

Author

Listed:
  • Mehmet Ali Soytaş

    (Özyeğin University, Faculty of Business, Turkey)

  • Damla Durak Uşar

    (Özyeğin University, Faculty of Business, Turkey)

Abstract

There is a large amount of empirical literature on the relationship between corporate sustainability and corporate financial performance. However, theture c onsiders company-specific aspects affecting the link but omits the influence of the competition. A firm’s gains from its sustainability efforts, however, depend on whether its industry competitors also perform sustainablehether si milar in type or different. Thus, we consider the sustainability decision making of companies to be of a strategic nature and show thatmotives, t ypically ignored in the literature, can be an important factorcess. We estimate an Instrumental Variable (IV) Probit modelsing inclusion in the MSCI KLD 400 Social Index and draw on financialon from the Wharton Research Data Services COMPUSTAT datasettify the effect of competition. We find that the effect of competition on the likelihood of entry into the sustainability market is negative, is only true if the endogeneity is correctly taken into account. Probit estimates present an upward bias, which means that results from raw models can be misleading in designing policies on sustainability. Overall evidence suggests a central role for strategic motives in management’s sustainability decisions.

Suggested Citation

  • Mehmet Ali Soytaş & Damla Durak Uşar, 2017. "Role of Strategic Interactions in Corporate Sustainability Decisions: An Empirical Investigation," Ekonomi-tek - International Economics Journal, Turkish Economic Association, vol. 6(1), pages 17-46, January.
  • Handle: RePEc:tek:journl:v:6:y:2017:i:1:p:17-46
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    References listed on IDEAS

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    1. Schoenherr, Tobias, 2012. "The role of environmental management in sustainable business development: A multi-country investigation," International Journal of Production Economics, Elsevier, vol. 140(1), pages 116-128.
    2. Battini, Daria & Persona, Alessandro & Sgarbossa, Fabio, 2014. "A sustainable EOQ model: Theoretical formulation and applications," International Journal of Production Economics, Elsevier, vol. 149(C), pages 145-153.
    3. Susan Athey & Jonathan Levin & Enrique Seira, 2011. "Comparing open and Sealed Bid Auctions: Evidence from Timber Auctions," The Quarterly Journal of Economics, Oxford University Press, vol. 126(1), pages 207-257.
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    5. Bajari, Patrick & Hortacsu, Ali, 2003. " The Winner's Curse, Reserve Prices, and Endogenous Entry: Empirical Insights from eBay Auctions," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 329-355, Summer.
    6. Hiedemann, Bridget & Stern, Steven, 1999. "Strategic play among family members when making long-term care decisions," Journal of Economic Behavior & Organization, Elsevier, vol. 40(1), pages 29-57, September.
    7. Keane, Michael P & Wolpin, Kenneth I, 1997. "The Career Decisions of Young Men," Journal of Political Economy, University of Chicago Press, vol. 105(3), pages 473-522, June.
    8. Danny Cassimon & Peter-Jan Engelen & Luc Liedekerke, 2016. "When do Firms Invest in Corporate Social Responsibility? A Real Option Framework," Journal of Business Ethics, Springer, vol. 137(1), pages 15-29, August.
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    More about this item

    Keywords

    Corporate sustainability; strategic interactions; market entry; MSCI KLD 400 Social Index ratings;

    JEL classification:

    • C36 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Instrumental Variables (IV) Estimation
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development

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