When CSR Gaps Become Competitive Signals: How CEO Motivation Shapes Competitive Dissimilarity

ABSTRACT Prior research has primarily examined corporate social responsibility (CSR) directed toward stakeholders such as investors, consumers, and regulators, signaling trustworthiness and positive moral character. However, nonmarket strategies such as CSR may also be interpreted by firms in relation to competitors, suggesting that CSR may influence interfirm competition. Despite the growing relevance of CSR in shaping competitive dynamics, we have only a limited understanding of how firms respond competitively to rivals' CSR activities. While CSR activities signal investments in specific stakeholders and a long‐term orientation, we argue that a rival's CSR activities convey information about the strategic positioning that influences a focal firm's competitive actions. By utilizing signaling theory and the awareness‐motivation‐capability framework, we argue that a gap between a focal firm's CSR substantive activities and a rival's symbolic CSR activities jointly affects their competitive actions, depending on the CEO's motivational factors: regulatory focus and compensation structure. The longitudinal analysis of 4341 dyad‐years from the S&P 500 companies suggests that larger CSR gaps within rival dyads increase their competitive dissimilarity. The interaction analysis reveals that this relationship depends on a CEO's prevention focus and performance‐based compensation. This study enhances understanding of the signaling mechanism of CSR activities toward rivals and highlights the spillover of nonmarket strategies into competition‐based strategies.