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5 months ago
Can corporate social performance (CSP) be rewarded? If yes, how? If no, why?
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Business and Its Environment
Edition: 7th
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CSP can be rewarded, although costs can accompany the rewards. Rewards could come directly from investors, consumers, or employees or other inputs to production. Rewards could also be indirect through relieving social pressure that could arise from either private politics or public politics. CSP that responds to the interests of stakeholders or the demands of NGOs can also build support for the firm in the market and the nonmarket environments. Firms may develop loyal customers, suppliers, and local communities whose support they may need for permits and approvals. Rewards can also come from government in the form of regulatory forbearance, as an example.
Consumer rewards: Individuals could reward a firm in their roles as consumers. Consumers could prefer to buy a product from a firm with CSP rather than from a firm without CSP. That is, social activities could provide a form of product differentiation.
Employee rewards: Individuals as employees could also reward a firm through higher productivity motivated by the social activities of their employees. Alternatively, a firm that conducts social activities could attract higher ability employees or find it easier to retain them. Policies such as allowing employees to volunteer in community organizations on company time can improve employee morale and may be rewarded through higher productivity and lower turnover.
Investor rewards: Purchasing shares of a firm with CSP provides both a financial return and a social return, and the market value of the firm is composed of the value of its financial return and the value of its social return. Costly social activities may not be fully valued in the capital market, however, since investors may prefer to make personal contributions to social causes than to hold shares in firms with CSP. The market value of the firm thus could be less than if it eliminated the social activities. If the reward for those activities exceeds the cost, the market value could be higher. Investors thus may reward the firm in part for its social activities by holding its shares or may penalize a firm that engages in a business the investor dislikes.
Government rewards: CSP could be rewarded by government. Politicians may be more willing to listen to a firm with good CSP, which can facilitate lobbying and other nonmarket strategies.
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