Do Constituency Statutes Really Benefit Customers?

Abstract

Although constituency statutes were enacted in 35 U.S. states from 1984 to 2016 to protect the interests of employees, customers, and suppliers, research has yet to empirically verify whether customers actually benefit from such laws. A game theory model suggests that product quality improves when companies internalize employees’ and suppliers’ interests. Our empirical evidence shows that constituency statute adoption is associated with significantly fewer product recalls, a relation that is more pronounced among firms with weaker and less stable relationships with both employees and supply chain partners. We also find that such laws are associated with higher product ratings from customers and better employee treatment.