Effect of B Corp Certification on Short-Term Growth: European Evidence

Abstract

This paper investigates the effect of sustainability certification on the short-term growth rates of socially responsible companies. A changing business environment in which stakeholders became more sensitive to the sustainability practices of companies induced a growing popularity of hybrid firms, which use market-based approaches to pursue environmental and social goals. However, stakeholders do not take unsubstantiated claims about companies’ sustainability efforts for granted, creating a potential economic role for independent certification organizations. In addition, the internal processes brought about by the external verification procedure could turn the social mission, which is often creating tension with financial goals, into a strategic advantage. B Lab is one such well-known and rapidly growing organization, granting so-called B Corp certificates across many countries around the world. This paper contributes to the hybrid firm literature by ascertaining the benefit of certification as measured by firm growth. Using a panel dataset of financial data of European firms that obtained B Corp certification between 2012 and 2018 and a quasi-experimental difference-in-difference research design, this paper empirically shows that B Corp certification positively impacts the turnover growth rates one year pre versus one year post certification. No significant effects on employee growth rates or total asset growth rates are found.