Market Responsiveness to Societal Interests

Abstract

The authors provide evidence that firms can enhance their own objectives by internalizing the objectives of most stakeholder groups. This suggests that society’s objectives, as defined by stakeholders to the firm, can be augmented by the self-interest motivation at the heart of a market system. Specifically examined was the impact of stakeholder responsiveness on innovativeness. The second objective of this study was to explore the impact of compliance-based versus strategic-based regulation approaches on firm innovation and overall corporate social responsibility (CSR). Findings suggest that regulatory responsiveness decreases innovation when firms expend resources only on compliance. Firms adopting strategic-based approaches, such as voluntary regulatory programs and collaborative strategies between the firm and government, however, are more innovative and demonstrate greater CSR. This study presents empirical tests that provide a strong first step in understanding how society’s goals can be further internalized into the engine of the market system. The implication is that both firms and regulators can find areas of win—win, with society as the beneficiary.