Reputation, corporate social responsibility and market regulation

Johan Graafland and H. Smid

MPRA Paper from University Library of Munich, Germany

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.

Keywords: Corporate social responsibility; market regulation (search for similar items in EconPapers)
JEL-codes: C49 M14 (search for similar items in EconPapers)
Date: 2004
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

Published in Tijdschrift voor Economie en Management XLIX (2004): pp. 271-308

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Journal Article: Reputation, Corporate Social Responsibility and Market Regulation (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:20772

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