Stakeholder orientation and product market performance: Evidence from a natural experiment

We examine the causal effect of stakeholder orientation on firms' product market performance. Using the staggered enactment of constituency statutes across different states as an exogenous shock that increases the extent of the stakeholder orientation, difference-in-difference estimations suggest that on average firms incorporated in states that adopted constituency statutes increase sales growth by 1.7% relative to firms incorporated in states that did not adopt such statutes. The effect is stronger if a firm has higher labor intensity and if a firm operates in a durable goods industry. In addition, we find that stakeholder orientation improves the quality of innovation.