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When a Sinner Does a Good Deed: The Path‐Dependence of Reputation Repair
Author(s) -
Shu Haibing,
Wong Sonia ManLai
Publication year - 2018
Publication title -
journal of management studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 4.398
H-Index - 184
eISSN - 1467-6486
pISSN - 0022-2380
DOI - 10.1111/joms.12312
Subject(s) - shareholder , reputation , business , deed , accounting , sample (material) , obstacle , finance , law , corporate governance , chemistry , chromatography , political science
This study examines how shareholders will interpret a socially desirable action taken by firms with a damaged corporate reputation status. We first explain theoretically why shareholders’ path‐dependent judgments of a tainted firm increase the likelihood of shareholders making less favourable judgments of the firm's socially desirable actions. We then test the theoretical predictions using a sample of Chinese listed firms that were sanctioned for securities fraud and subsequently made donations to the 2008 Sichuan earthquake relief funds. We find that the shareholders evaluate the donations made by fraud‐tainted firms less favourably than those made by firms that have not been sanctioned for fraud. Furthermore, the shareholders’ evaluations of the donations made by fraud‐tainted firms is less favourable if the firms have committed more serious fraud and undertaken fewer positive remedial actions in the post‐fraud period. Overall, our evidence demonstrates that shareholders’ path‐dependent judgments of fraud‐tainted firms constitute a major obstacle that constrains the effectiveness of reputation repair.