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Reputation, corporate social responsibility and market regulation

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  • Graafland, J.J.
  • Smid, H.

Abstract

The paper investigates the role of the government and self-regulatory reputation mechanisms to internalise externalities of market operation. If it pays off for companies to invest in a good reputation by an active policy of corporate social responsibility (CSR), external effects of the market will be (partly) internalised by the market itself. The strength of the reputation mechanism depends on the functioning of non governmental organisations (NGOs), the transparency of the company, the time horizon of the company, and on the behaviour of employees, consumers and investors. On the basis of an extensive study of the empirical literature on these topics, we conclude that in general the working of the reputation mechanism is rather weak. Especially the transparency of companies is a bottleneck. If the government would force companies to be more transparent, it could initiate a self-enforcing spiral that would improve the working of the reputation mechanism. We also argue that the working of the reputation mechanism will be weaker for smaller companies and for both highly competitive and monopolistic markets. We therefore conclude that government regulation is still necessary, especially for small companies.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 20772.

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Date of creation: 2004
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Handle: RePEc:pra:mprapa:20772

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Keywords: Corporate social responsibility; market regulation;

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References

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  1. Graafland, J.J., 2002. "Sourcing ethics in the textile sector: The case of C&A," MPRA Paper 20769, University Library of Munich, Germany.
  2. Graafland, J.J. & Eijffinger, S.C.W., 2004. "Corporate social responsibility of Dutch companies: Benchmarking, transparency and robustness," Open Access publications from Tilburg University urn:nbn:nl:ui:12-138824, Tilburg University.
  3. Graafland, J.J. & Ven van de, B. & Stoffele, N., 2003. "Strategies and instruments for organising CSR by small and large businesses in the Netherlands," MPRA Paper 20754, University Library of Munich, Germany.
  4. Kimberly Ann. Elliott & Richard B. Freeman, 2004. "White Hats or Don Quixotes? Human Rights Vigilantes in the Global Economy," NBER Chapters, in: Emerging Labor Market Institutions for the Twenty-First Century, pages 47-98 National Bureau of Economic Research, Inc.
  5. Bizjak, John M. & Brickley, James A. & Coles, Jeffrey L., 1993. "Stock-based incentive compensation and investment behavior," Journal of Accounting and Economics, Elsevier, vol. 16(1-3), pages 349-372, April.
  6. Akerlof, George A, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, MIT Press, vol. 97(4), pages 543-69, November.
  7. Graafland, J.J., 2003. "Distribution of responsibility, ability and competition," MPRA Paper 20731, University Library of Munich, Germany.
  8. Francois, P. & Roberts, J., 2001. "Contracting Productivity Growth," Discussion Paper 2001-35, Tilburg University, Center for Economic Research.
  9. Zahra, Shaker A. & Covin, Jeffrey G., 1995. "Contextual influences on the corporate entrepreneurship-performance relationship: A longitudinal analysis," Journal of Business Venturing, Elsevier, vol. 10(1), pages 43-58, January.
  10. Graafland, J.J., 2002. "Modelling the trade-off between profits and principles," MPRA Paper 20752, University Library of Munich, Germany.
  11. Landon, Stuart & Smith, Constance, 1997. "The Use of Quality and Reputation Indicators by Consumers: The Case of Bordeaux Wine," MPRA Paper 9283, University Library of Munich, Germany.
  12. Richardson, Vernon J & Waegelein, James F, 2002. " The Influence of Long-Term Performance Plans on Earnings Management and Firm Performance," Review of Quantitative Finance and Accounting, Springer, vol. 18(2), pages 161-83, March.
  13. Koku, Paul Sergius & Akhigbe, Aigbe & Springer, Thomas M., 1997. "The Financial Impact of Boycotts and Threats of Boycott," Journal of Business Research, Elsevier, vol. 40(1), pages 15-20, September.
  14. Badrinath, S G & Bolster, Paul J, 1996. "The Role of Market Forces in EPA Enforcement Activity," Journal of Regulatory Economics, Springer, vol. 10(2), pages 165-81, September.
  15. Brown, Lawrence D. & Ngo Higgins, Huong, 2001. "Managing earnings surprises in the US versus 12 other countries," Journal of Accounting and Public Policy, Elsevier, vol. 20(4-5), pages 373-398.
  16. Oriol Amat & John Blake & Ester Oliveras, 2000. "The ethics of creative accounting: Some Spanish evidence," Economics Working Papers 455, Department of Economics and Business, Universitat Pompeu Fabra.
  17. Webley, Paul & Lewis, Alan & Mackenzie, Craig, 2001. "Commitment among ethical investors: An experimental approach," Journal of Economic Psychology, Elsevier, vol. 22(1), pages 27-42, February.
  18. Graafland, J.J., 2001. "Profts and principles: Four perspectives," MPRA Paper 21134, University Library of Munich, Germany.
  19. Kong, Nancy & Salzmann, Oliver & Steger, Ulrich & Ionescu-Somers, Aileen, 2002. "Moving Business/Industry Towards Sustainable Consumption:: The Role of NGOs," European Management Journal, Elsevier, vol. 20(2), pages 109-127, April.
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Citations

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Cited by:
  1. J. Graafland, 2010. "Do Markets Crowd Out Virtues? An Aristotelian Framework," Journal of Business Ethics, Springer, vol. 91(1), pages 1-19, January.
  2. David Williamson & Gary Lynch-Wood & John Ramsay, 2006. "Drivers of Environmental Behaviour in Manufacturing SMEs and the Implications for CSR," Journal of Business Ethics, Springer, vol. 67(3), pages 317-330, September.
  3. Johan Graafland & Corrie Mazereeuw-Van Der Duijn Schouten, 2007. "The Heavenly Calculus and Socially Responsible Business Conduct: An Explorative Study among Executives," De Economist, Springer, vol. 155(2), pages 161-181, June.
  4. Thomas Laudal, 2011. "Drivers and barriers of CSR and the size and internationalization of firms," Social Responsibility Journal, Emerald Group Publishing, vol. 7(2), pages 234-256, July.
  5. Haylee Uecker-Mercado & Matthew Walker, 2012. "The Value of Environmental Social Responsibility to Facility Managers: Revealing the Perceptions and Motives for Adopting ESR," Journal of Business Ethics, Springer, vol. 110(3), pages 269-284, October.
  6. Suman Sen & James Cowley, 2013. "The Relevance of Stakeholder Theory and Social Capital Theory in the Context of CSR in SMEs: An Australian Perspective," Journal of Business Ethics, Springer, vol. 118(2), pages 413-427, December.
  7. Nijhof, A. & Graafland, J.J. & Kuijer de, O., 2009. "Exploration of an agenda for transparency in the construction industry," MPRA Paper 20274, University Library of Munich, Germany.

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