Market competition and firms' social performance

Chee Kian Leong, Yung Chiang Yang

Research output: Journal PublicationArticlepeer-review

14 Citations (Scopus)

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.

Original languageEnglish
Pages (from-to)601-612
Number of pages12
JournalEconomic Modelling
Volume91
DOIs
Publication statusPublished - Sep 2020

Keywords

  • Instrumental variable
  • Market competition
  • Social performance

ASJC Scopus subject areas

  • Economics and Econometrics

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