Professors Xintong Zhan, School of Management Fudan University, Jie Cao, School of Accounting and Finance, Hong Kong Polytechnic University, and Hao Liang, Singapore Management University, investigate how peer behaviour in firms influences Corporate Social Responsibility.

Peer Pressure: A way to further CSR? by CoBS Editor Michelle Diaz. Related research: Jie Cao, Hao Liang, Xintong Zhan (2019) Peer Effects of Corporate Social Responsibility. Management Science 65(12) :5487-5503. https://doi.org/10.1287/mnsc.2018.3100

The people we surround ourselves with affect us in multiple ways – from the way we dress, to the way we speak, act, and even the values we hold dear. But is this a truth we can take advantage of in the workplace?

Might we leverage this phenomenon to further the corporate social responsibility (CSR) initiatives of firms? How does peer pressure in this regard stack up against other incentives to not have strong CSR policies? And can it negate the inertia within companies, or better yet, compete with the financial incentives against CSR policies?

Professors Zhan, Cao, and Liang explore and attempt to answer these questions by investigating the way in which firms pass or fail CSR proposals.

The difficulty of investigating peer effects on CSR

Effectively narrowing down the power of peer effects on human behaviour is notoriously difficult. Particularly in environments like the workplace wherein there are multiple factors that can encourage, discourage, or otherwise affect how decisions are made. Prof. Xintong Zahn of Fudan School of Management and her fellow researchers address this investigatory conundrum by using a quasi-randomized assignment and a regression discontinuity design approach.

Essentially, they evaluate the causal effect of a firm’s influence on other firms by reviewing the small margin of votes at which CSR proposals pass or fail during shareholder meetings. And further looking into the reaction of peer firms in the same market, thereby testing the idea that a firm’s CSR practices creates competitive pressure for other similar firms.

Moreover, they take into account the need to isolate factors such as legislation that would affect CSR adoption, as well as looking at close call CSR proposals which provide a random sample of variation to estimate the causal effect of peer’s CSR policy adoptions. Lastly, Prof. Zhang et al assess the effect of CSR proposal adoption through the stock market reaction to the passing of a CSR proposal, along with the degree of implementation after a proposal passes.

Repercussions of Peer Behaviours on CSR

While there is a myriad of factors that can affect a firm’s decision and behaviour, for CSR policy and implementation: what the neighbouring firm does matters. So much so that a passing of a proposal can instigate interest, and an implementation can not only inspire another firm to start with a proposal, but also positively influence the company’s stock performance in the market.

All this to say that influence does extend beyond the individual to organised firms – and that this is a relationship one can and should capitalise on. If enough firms with extensive reach and brand clout move towards more progressive CSR policies, then together, business can lift everyone’s overall performance.

The question remains how to get the key players in various industries to throw the first shot.

Useful links:

• Link up with Profs. Xintong Zhan, Jie Cao, and Hao Liang on LinkedIn
• Read this and other CSR-Sustainability-ESG articles in Global Voice magazine #27
• Read a related article: How financial markets can boost CSR: Green and ethical investing
• Discover School of Management Fudan University and apply for the Fudan-MIT International MBA program.

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