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Why Do Firms Have "Purpose"? The Firm's Role as a Carrier of Identity and Reputation

Author

Listed:
  • Rebecca Henderson
  • Eric Van den Steen

Abstract

This article develops a theory in which a firm's adoption of a prosocial purpose can increase profitability by strengthening employees' reputation and identity—leading to higher effort and lower wages—as long as implementing purpose is costly with respect to direct monetary payoffs. Employees who value prosocial action will select into firms with a social purpose, which then become a visible carrier for these employees' identity and reputation.

Suggested Citation

  • Rebecca Henderson & Eric Van den Steen, 2015. "Why Do Firms Have "Purpose"? The Firm's Role as a Carrier of Identity and Reputation," American Economic Review, American Economic Association, vol. 105(5), pages 326-330, May.
    • Handle: RePEc:aea:aecrev:v:105:y:2015:i:5:p:326-30
    Note: DOI: 10.1257/aer.p20151072
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    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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