When peers fail: Spillover effects of CSR incidents on real investment

This paper investigates how peer firms’ Corporate Social Responsibility (CSR)-related incidents influence the corporate investment efficiency of non-incident firms. Using a sample of U.S. firms from 2007 to 2021, we document a significant increase in investment-Tobin’s Q sensitivity following negative peer events, thereby improving investment efficiency. We identify three non-mutually exclusive channels. First, the effect is stronger among firms with higher analyst coverage, greater stock trading volume, and closer product-market proximity to the incident firm, consistent with the notion of heightened external scrutiny. Second, peer incidents act as informational shocks that enhance managerial learning from external signals, particularly when firms operate in competitive industries, face high product market uncertainty, or have more informative stock prices. Furthermore, we find that the performance of focal firms deteriorates following peer incidents and that efficiency gains are greater among firms that were previously overinvesting. Taken together, these findings suggest that peer CSR scandals act as disciplining and learning events that improve investment behaviour across the industry.