Self-Regulation for Reputation-Sensitive Buyers: SA8000 in China

Industries and firms have diverse motives for adopting self-regulatory institutions. This research develops and tests propositions about one motive—exploiting opportunities to do business with reputation-sensitive buyers—as distinct from self-regulation to defend against regulatory or activist threats. To study the adoption and effects of self-regulation for reputation-sensitive buyers, we study the SA8000 socially responsible employment certification among large firms in China in the early 2000s. Using official longitudinal industrial microdata, we test hypotheses generated by this assumed motive for self-regulation and find that (a) despite concerns about the corruptibility of certification bodies, SA8000 adopters in China exhibited higher precertification worker wages than comparable nonadopters, (b) self-regulation led to increased employment and sales to foreign markets, where reputation-sensitive buyers are concentrated, (c) the positive effect on exports was greater than the (insignificant, negatively signed) effect on domestic sales, and (d) there is no evidence that self-regulation increased worker wages beyond the initial high start. Contrasting these findings with prior research on industry self-regulation for other motives, this study highlights how both adoption patterns and downstream effects differ according to the audience for self-regulation. This paper was accepted by Olav Sorenson, organizations. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2020.01306 .