How increased foreign competition motivates domestic firms to do good: an examination of foreign entry mode and domestic CSR response

Abstract

Purpose

We examine whether domestic firms react differently to foreign direct investment (FDI) entry modes –mergers and acquisitions (M&A) versus greenfield. Specifically, we ascertain whether the entry mode of foreign competition motivates different corporate social responsibility (CSR) responses from domestic firms and when such relationships hold.

Design/methodology/approach

We employ fixed-effects models using 1,331 US firm-year observations for 2015–2018. Furthermore, we examine the interactive effects of industry concentration to examine a key boundary condition.

Findings

Foreign entry via greenfield mode has no effect on domestic firm CSR. Entry through M&A has a significantly positive effect. We attribute these findings to the increased threat to domestic firms from foreign M&A whereas foreign entry through greenfield mode is less threatening as entrants face significantly more challenges in host countries. We identify industry concentration as a boundary condition of our findings. The effect of foreign M&A entries on domestic firms' CSR becomes weaker as industries are more concentrated.

Originality/value

This study offers novel insights on FDI by parsing out different reactions to entry mode by domestic firms. We add to our understanding of CSR as a mechanism to stave off foreign competition, offer insights into a key boundary condition of such actions and demonstrate the robustness of our findings.

Citation

Woo, H.-S., Berns, J., Mukherjee, K. and Kim, J. (2022), "How increased foreign competition motivates domestic firms to do good: an examination of foreign entry mode and domestic CSR response", Journal of Strategy and Management, Vol. 15 No. 4, pp. 538-554. https://doi.org/10.1108/JSMA-05-2021-0118