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

Mehmet Soytas () and Damla Durak Uşar
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Damla Durak Uşar: Özyeğin University, Faculty of Business, Turkey

Ekonomi-tek - International Economics Journal, 2017, vol. 6, issue 1, 17-46

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.

Keywords: Corporate sustainability; strategic interactions; market entry; MSCI KLD 400 Social Index ratings (search for similar items in EconPapers)
JEL-codes: C36 D22 L10 L21 L60 M14 Q01 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (1)

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