Purpose, Profit and Social Pressure

Song, Fenghua; Thakor, Anjan V.; Quinn, Robert E.

doi:10.2139/ssrn.4355332

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Purpose, Profit and Social Pressure

European Corporate Governance Institute – Finance Working Paper No. 881/2023

25 Pages Posted: 12 Feb 2023

See all articles by Fenghua Song

Fenghua Song

Pennsylvania State University - Smeal College of Business

Washington University in St. Louis - John M. Olin Business School; Financial Theory Group; European Corporate Governance Institute (ECGI); Massachusetts Institute of Technology (MIT) - Laboratory for Financial Engineering

Robert E. Quinn

University of Michigan, Stephen M. Ross School of Business

There are 2 versions of this paper

Date Written: December 20, 2022

Abstract

We develop a model in which there are firms and employees who care about profit-sacrificing higher purpose (HP) and those who do not. Firms and employees search for each other in the labor market. Each firm chooses its HP investment. When there is no social pressure on firms to adopt a purpose, HP dissipates agency frictions, lowers wage costs, yet elicits higher employee effort in firms that intrinsically value the purpose. However, social pressure to invest in HP can distort the HP investments of all firms and reduce welfare by making all agents worse off.

Keywords: Higher purpose, Incentives, Labor market matching, Organizational performance

JEL Classification: D02, D21, D23, D64

Suggested Citation: Suggested Citation

Song, Fenghua and Thakor, Anjan V. and Quinn, Robert E., Purpose, Profit and Social Pressure (December 20, 2022). European Corporate Governance Institute – Finance Working Paper No. 881/2023, Available at SSRN: https://ssrn.com/abstract=4355332 or http://dx.doi.org/10.2139/ssrn.4355332