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Reputation, Corporate Social Responsibility and Market Regulation

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  • J.J. Graafland
  • H. Smid

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.

Suggested Citation

  • J.J. Graafland & H. Smid, 2004. "Reputation, Corporate Social Responsibility and Market Regulation," Review of Business and Economic Literature, KU Leuven, Faculty of Economics and Business, Review of Business and Economic Literature, vol. 0(2), pages 271-308.
  • Handle: RePEc:ete:revbec:20040204
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    File URL: http://feb.kuleuven.be/rebel/jaargangen/2001-2010/2004/TEM2004-2/TEM%2004_2_4_GRAAFLAND.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. 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.
    2. Martin Hernani Merino & Enver Gerald Tarazona Vargas & Antonieta Hamann Pastorino & José Afonso Mazzon, 2014. "Validation of Sustainable Development Practices Scale Using the Bayesian Approach to Item Response Theory," Tržište/Market, Faculty of Economics and Business, University of Zagreb, vol. 26(2), pages 147-162.
    3. 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.
    4. Oded, Sharon, 2011. "Inducing corporate compliance: A compound corporate liability regime," International Review of Law and Economics, Elsevier, vol. 31(4), pages 272-283.
    5. Gary Lynch-Wood & David Williamson, 2014. "Civil Regulation, the Environment and the Compliance Orientations of SMEs," Journal of Business Ethics, Springer, vol. 125(3), pages 467-480, December.
    6. J. Graafland, 2010. "Do Markets Crowd Out Virtues? An Aristotelian Framework," Journal of Business Ethics, Springer, vol. 91(1), pages 1-19, January.
    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.
    8. 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.
    9. 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.

    More about this item

    JEL classification:

    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • C49 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Other

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