Why Do Firms Have “Purpose”? The Firm's Role as a Carrier of Identity and Reputation | Zendy

Rebecca Henderson | Zendy; Eric van Steen | Zendy

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

Author(s) -

Rebecca Henderson,

Eric van Steen

Publication year - 2015

Publication title -

american economic review

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 16.936

H-Index - 297

eISSN - 1944-7981

pISSN - 0002-8282

DOI - 10.1257/aer.p20151072

Subject(s) - reputation , prosocial behavior , profitability index , identity (music) , value (mathematics) , microeconomics , action (physics) , social identity theory , organizational identity , labour economics , economics , incentive , business , social psychology , finance , sociology , psychology , social group , social science , physics , acoustics , quantum mechanics , machine learning , computer science

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.

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