29/03/2011
Certification of Corporate Social Responsibility Activities in Oligopolistic Markets

Certification of Corporate Social Responsibility Activities in Oligopolistic Markets

We investigate the impact of alternative certifying institutions on firms' incentives to engage in costly Corporate Social Responsibility (CSR) activities as well as their relative market and societal implications.

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The present paper investigates the effects of alternative certifying institutions on firms’ incentives to engage in costly CSR activities as well as their relative market and societal implications. In particular, it addresses the following four questions. 

First, what is the relative effectiveness of alternative CSR certifying institutions on enhancing firms’ CSR effort levels? This question has been motivated by the fact that there are private (non-profit and for-profit) as well as public institutions certifying firms’ CSR activities.

Second, do firms certified for their CSR activities perform better than those not certified? What are the relative market outcomes of the alternative certifying institutions? The empirical literature examining the effects of certifying firms’ CSR activities on their market performance is scant and does not offer clear evidence.

Third, what are the relative societal effects of the alternative certifying institutions? Inter- estingly, when CSR started becoming widespread, its further encouragement became a central policy objective in both the U.S. and the E.U., aiming at promoting sustainable growth and competitiveness (European Commission, 2001; 2006). Although their main objective is the same, Doh and Guay (2006) argue that “different institutional structures and political legacies in the US and EU are important factors in explaining how governments, NGOs, and the broader policy determine and implement preferences regarding CSR in these two important world regions”.

Fourth, does the timing at which the CSR certification standard is set influence the firms’ incentives to invest in CSR activities? One reason that this question may deserve attention is that, although CSR has been reported as a major operational activity of firms over the past 40 years (Friedman, 1970; Moskowitz, 1972; Parket and Eibert, 1975), it was only in 1998 when the first CSR certification standard appeared. 

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