The Impact of Certification Regulation on Hybrid Firm Signaling and Performance
Edward Gamble, Ph.D, CPA, CMA, MBA, Assistant Professor of Accounting
Hybrid organizations act as category-spanners by attempting to simultaneously create social, environmental, and economic value as a by-product of their activities. In the first study I propose an examination of a particular form of regulated hybrid organization – Certified B Corporations. B Lab is a U.S. not-for-profit organization that acts as a third-party external auditor of social and environmental reporting (André, 2012). It grants the designation of ‘Certified B Corporation’ (CBC) to organizations worldwide which meet or exceed B Lab’s standards. In this paper, I introduce a new social and environmental mission integration scale to determine which organizations are freeriding in this regulated space, garnering certification with de minimus prosocial efforts. Subsequently, I consider the impacts of this organizational behavior. This study uses data already collected from Canada, the United States, and Mexico. In the second study, I examine hybrid certification in the wine industry to understand the impact of regulated certification (Demeter) on the financial health of biodynamic vineyards. This proposed study collects data from biodynamic vineyards in Canada, the United States, and Chile. Some of this data is already collected.
There are two interrelated regulatory issues examined in this proposal. The focus of this proposal is on the impacts of certification regulations. Both of the proposed studies involve data collection from three different countries (some of which is already collected). The specific aim of the first study is to examine the third party certification regulated by B Lab (https://www.bcorporation.net). This study tests the sincerity and impact of certification claims. By assigning typologies, and using previously collected private financial data on B Corps, I will be 3 able to examine the impacts of freeloading firms in the regulated category. The specific aim of the second study is to examine the impact of Demeter biodynamic certification (http://www.demeterusa.org) on the financial performance of firms. In this study, there will be a more targeted effort to learn about the impact of being certified as biodynamic. For example, we will seek to understand perceived/actual quality, access to capital, and conflicts with Judeo-Christian ethics. My four aims are: (1) To write up the certified B corporation paper given the extremely positive empirical results. (2) To collect more data for the second proposed study on Demeter biodynamic certification (fieldwork in America and Chile). The Canadian data is already collected. (3) To present one or both of the proposed papers to an academic or professional audience. (4) To submit one paper by the end of 2018 and another paper by mid 2019.
The research focus: To explore whether or not social businesses are hiding in a regulated category and the impacts that this may have on various constituents. The research question for this paper: Do certified B corporations hide within a regulated category and what are the potential impacts of such actions? Method: Multinomial logistic regression. The data is already collected and preliminary results are very positive (in that they shed light on something interesting and novel).
The research focus: To investigate the impact of biodynamic wine certification/regulation on the performance and financial health of vineyard owners. The research question for this paper: How have biodynamic wine regulations impacted businesses in Canada, USA, and Chile? A cross-border study. Method: This project employs a grounded theory approach to a qualitative study. A grounded theory approach is appropriate when trying to understand meaning construction and reality interpretation (Suddaby, 2006). This understanding can be derived from data through constant comparison and theoretical sampling (Corbin & Strauss, 2008).
Significance of the Project
Regulation prosocial efforts, for example Certified B Corporation or Demeter biodynamic certification, may have unintended impacts/consequences. Two of these consequences include, freeriders jeopardizing the legitimacy of the certification and/or decreased firm performance. Certification is an important contemporary regulation-related conversation. Given the growing attention towards hybrid organizational forms, it makes academic and practical sense to learn more about the associated regulated certifications and their impacts. For both projects, I have private financial data as well as personal networks to initiate the fieldwork. The significance will be demonstrated by outputs, such as white papers that lead to scholarly publications, policy papers, presentations and eventual publication in a top journal.
The research plan for this project includes: (1) For the first study data is already collected and preliminary empirical tests have been conducted. Therefore further robustness tests will have to be conducted. (2) A preliminary literature review is underway to assess the current state categorization theory, as well as literature on hybrid organizational forms and firm performance. This will need further expansion. (3) For the second project, additional data will need to be collected in the US and in Chile. I would hope to collect this during Fall 2018 or Early 2019. (4) Once the data is collected for the second paper I would like to present both papers so that I can compile all expert feedback. (5) In the Spring of 2019 I would expect one full paper ready for submission and to have one white paper complete.