Market competition and firms' social performance

Chee Kian Leong and Yung Chiang Yang

Economic Modelling, 2020, vol. 91, issue C, 601-612

Abstract: This paper investigates whether market competition encourages firms to be more socially responsible. We find that firms in more competitive markets exhibit better overall social performance, as measured by doing well (“strength”) and doing badly (“concern”) in areas such as community, environment, human rights, and treatment of employees. To deal with endogeneity, we instrument market competition on entry barrier and observe that market competition only significantly reduces social concerns but not increases social strengths. Thus, firms are more reactive in reducing social concerns than proactive in augmenting their social strengths. Amongst these concerns, firms appear to be more active in reducing environmental concerns. The paper underscores the limitations in relying on the “invisible hand” of the market to deal with the multi-dimensional challenges of firms’ social performance.

Keywords: Social performance; Market competition; Instrumental variable (search for similar items in EconPapers)
JEL-codes: D22 D40 L21 M14 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:91:y:2020:i:c:p:601-612

DOI: 10.1016/j.econmod.2019.12.002

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