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ESG: A Panacea for Market Power?
In our paper “ESG: A panacea for market power?,” now published in the Journal of Financial Economics, we investigate a fundamental question: What happens when firms credibly pledge to treating stakeholders better than market conditions would dictate? Consider these common examples: Firms pledge generous compensation and favorable working conditions for employees. Companies pledge environmental stewardship […]
Philip Bond is a Professor of Finance and Business Economics at the University of Washington, and Doron Levit is the Marion B. Ingersoll Endowed Professor of Finance and Business Economics at the University of Washington Foster School of Business. This post is based on their recent article forthcoming in the Journal of Financial Economics.
In our paper “ESG: A panacea for market power?,” now published in the Journal of Financial Economics, we investigate a fundamental question: What happens when firms credibly pledge to treating stakeholders better than market conditions would dictate?
Consider these common examples:
- Firms pledge generous compensation and favorable working conditions for employees.
- Companies pledge environmental stewardship to their customers.
- Businesses commit to pay “fair” prices to suppliers for inputs like coffee or cacao beans.
These types of corporate commitments have grown significantly in recent decades as market-primacy doctrine has receded. Understanding the consequences of these pledges has become increasingly important in today’s business landscape.
Historically, these pledges have appeared under various labels, most notably “corporate social responsibility.” Today, they are most closely associated with the “social” pillar of ESG policies—the terminology we adopt throughout our analysis.
