Certifiably Responsible? Self-Regulation and Market Response in China

33 Pages Posted: 3 Jun 2020

See all articles by Greg Distelhorst

Greg Distelhorst

University of Toronto, Centre for Industrial Relations and Human Resources; University of Toronto, Rotman School of Management

Judith C. Stroehle

University of Oxford - Said Business School

Duanyi Yang

Massachusetts Institute of Technology (MIT) - Institute for Work and Employment Research (IWER)

Date Written: May 5, 2020

Abstract

Do self-regulatory institutions in high-corruption environments attract more socially responsible firms? Or do irresponsible firms use self-regulatory institutions to shield themselves from scrutiny? Previous research suggests that self-regulation in these settings often attracts less responsible organizations (adverse selection). However, studying the SA8000 socially responsible employment certification in the high-corruption context of mid-2000s China, we show that firms holding the certification exhibited 11% higher average wages than non-adopters in the same industry and region. To explain this puzzle, we theorize the use of self-regulatory institutions in pursuit of reputation-sensitive buyers. Such buyers privately monitor their suppliers, making up for deficiencies in the institutional environment and reducing the expected returns of low-road firms bribing their way into self-regulatory institutions. Using longitudinal industrial microdata, we show that the wage advantage of self-regulators in China is indeed attributable to selection, with no evidence of a causal effect of self-regulation on wages. Consistent with our theory, foreign buyers and domestic buyers responded differently to self-regulation. In longitudinal analyses including subsamples balanced on levels and trends of pretreatment outcomes, exports increased markedly, and domestic sales did not. Finally, this form of self-regulation appears to pay off, with certification-adopters growing in size and showing slightly higher rates of firm survival.

Keywords: self-regulation, social responsibility, labor, global supply chains, China

Suggested Citation

Distelhorst, Greg and Stroehle, Judith and Yang, Duanyi, Certifiably Responsible? Self-Regulation and Market Response in China (May 5, 2020). Available at SSRN: https://ssrn.com/abstract=3593837 or http://dx.doi.org/10.2139/ssrn.3593837

Greg Distelhorst (Contact Author)

University of Toronto, Centre for Industrial Relations and Human Resources ( email )

HOME PAGE: http://www.gregdistelhorst.com

University of Toronto, Rotman School of Management

Judith Stroehle

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

Duanyi Yang

Massachusetts Institute of Technology (MIT) - Institute for Work and Employment Research (IWER) ( email )

United States

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