Still dare to be different? Peers' <scp>CSR</scp> engagement and analysts' response to focal firms' <scp>CSR</scp> strategies

Abstract This study investigates how security analysts' response to focal firms' corporate social responsibility (CSR) strategies varies with the level of CSR engagement among peer firms, about which contradictory arguments can be drawn from the perspectives of legitimacy and competitive dynamics. Legitimacy theory underscores the importance of conformity to peers' behaviors, while the competitive dynamics perspective suggests that firms should differentiate from their peers. The optimal distinctiveness theory suggests an orchestration between CSR conformity and CSR differentiation, combining the arguments of legitimacy and competitive dynamics. Based upon a sample of Chinese listed companies from 2009 to 2018, this study uses a second‐hand panel dataset and employs three‐way interactions and the generalized method of moments (GMM) system. The empirical results show that as CSR engagement among peer firms increases, heavier legitimacy pressure is imposed on focal firms, and their CSR scope conformity attracts more analyst coverage, and this effect is more prominent for firms in institutionally developed regions. On the other hand, the competitive advantage gained from CSR emphasis differentiation is weakened by rivals' engagement in CSR, and the influence of CSR emphasis differentiation on analyst recommendation is weakened by peers' CSR engagement, and in highly competitive industries, this effect of peers' CSR engagement is stronger. We propose that peers' CSR engagement has different impacts on the importance of CSR conformity and differentiation. Finally, both the theoretical and practical implications are discussed.