Competing for government procurement contracts: The role of corporate social responsibility

Research Summary: This study examines whether corporate social responsibility (CSR) improves firms' competitiveness in the market for government procurement contracts. To obtain exogenous variation in firms' social engagement, I exploit a quasi-natural experiment provided by the enactment of state-level constituency statutes, which allow directors to consider stakeholders' interests when making business decisions. Using constituency statutes as instrumental variable (IV) for CSR, I find that companies with higher CSR receive more procurement contracts. The effect is stronger for more complex contracts and in the early years of the government-company relationship, suggesting that CSR helps mitigate information asymmetries by signaling trustworthiness. Moreover, the effect is stronger in competitive industries, indicating that CSR can serve as a differentiation strategy to compete against other bidders. Managerial Summary: This study examines how companies can strategically improve their competitiveness in the market for government procurement contracts-a market of economic importance (15-20% of GDP). It shows that companies with higher social and environmental performance (CSR) receive more procurement contracts. This effect is stronger for more complex contracts, in the early years of the government-company relationship, and in more competitive industries. These findings indicate that firms' CSR can serve as a signaling and differentiation strategy that influences the purchasing decision of government agencies. Accordingly, managers operating in the business-to-government (B2G) sector could benefit from integrating social and environmental considerations into their strategic decision making.