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  3. American Economic Review
  4. May 2015
  5. Why Do Firms Have "Purpose"? The Firm's Role as a Carrier of Identity and Reputation

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

Why Do Firms Have "Purpose"? The Firm's Role as a Carrier of Identity and Reputation

  • Rebecca Henderson
  • Eric Van den Steen
American Economic Review
vol. 105, no. 5, May 2015
(pp. 326–30)
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Abstract

This article develops a theory in which a firm's adoption of a prosocial purpose can increase profitability by strengthening employees' reputation and identity—leading to higher effort and lower wages—as long as implementing purpose is costly with respect to direct monetary payoffs. Employees who value prosocial action will select into firms with a social purpose, which then become a visible carrier for these employees' identity and reputation.

Citation

Henderson, Rebecca, and Eric Van den Steen. 2015. "Why Do Firms Have "Purpose"? The Firm's Role as a Carrier of Identity and Reputation." American Economic Review, 105 (5): 326–30. DOI: 10.1257/aer.p20151072

Additional Materials

JEL Classification

  • D21 Firm Behavior: Theory
  • J31 Wage Level and Structure; Wage Differentials
  • L25 Firm Performance: Size, Diversification, and Scope
  • M14 Corporate Culture; Diversity; Social Responsibility