To balance between efficiency and fairness: leveraging CSR as optimal distinctive instrument

Abstract

While corporate social responsibility (CSR) has become strategically vital, there is limited understanding of how to balance its conformity and differentiation. Using 8,252 firm-year observations of Chinese listed firms from 2010 to 2019, we examine how CSR scope conformity and emphasis differentiation affect firm efficiency and fairness based on optimal distinctiveness theory (ODT). In terms of efficiency, we find inverted U-shaped relationship between CSR scope conformity and total factor productivity (TFP), alleviated by CSR emphasis differentiation, and U-shaped relationship between CSR emphasis differentiation and TFP. In terms of fairness, we find that both CSR scope conformity and emphasis differentiation increase the executive-to-employee pay gap, through different channels; scope conformity increases the normal pay gap, while emphasis differentiation increases the excess pay gap, which is amplified by conformity. Thus, we can identify two OD configurations in theoretical terms. In practice, however, there is no general OD solution fits for all firms.