This paper examines the relationship between focal firms’ corporate social responsibility (CSR) and the financial constraints of their industry peers. We find that focal firms reduce their CSR investments in response to an increase in competitor financial constraints. Our findings are robust to two exogenous shocks: the 2008 financial crisis and the American Jobs Creation Act of 2004. We further show that product market competition drives our results by motivating firms to reallocate resources and prioritize investing in core business activities rather than CSR when peers face difficulty accessing funds. Intriguingly, the fading of such virtues does not necessarily lead to a decline in firm performance. We find that the reduction in CSR induced by peer financial constraints improves the profitability, operating efficiency, and market power of focal firms while attracting more institutional investors.

This paper investigates the local peer effects of corporate social responsibility (CSR). We find that a firm's CSR engagement comoves with that of other firms headquartered nearby. The results are robust when considering the nonlocal dominant industry CSR portfolio and different cross-region sensitivities to macro shocks. Moreover, the CSR of firms that change their headquarters location experiences an increase (decrease) in comovement with the CSR of firms in the new (old) location. We further explore several channels through which the local CSR comovement is motivated. We show that local CSR comovement is mainly driven by a firm's incentives to access financing. Besides, we find weak evidence that firms comove in CSR in order to set a positive image to the public and our findings do not support the agency channel of the local peer effects of CSR.

The U.S. money management industry is geographically concentrated and diverges from the geographic clustering of public firms. We find that firms located in states with strong institutional investor presence have high valuation. These firms invest more and their investments are less dependent on internal cash flow. They are more likely to issue equity than debt for financing needs, and local institutions hold more of the newly issued equity. The results show the geographic dislocation between institutional investors and firms contributes to financial market frictions, and a strong institutional investor presence alleviates the funding friction of local firms, leading to high valuation.