Reputations in flux: How a firm defends its multiple reputations in response to different violations

Jonathan Bundy, Farhan Iqbal and Michael D Pfarrer

Strategic Management Journal, 2021, vol. 42, issue 6, 1109-1138

Abstract: Research Summary We examine how a firm defends its capability and character reputations in response to different violations. We develop our core theoretical mechanism—stakeholders' situational expectations—to theorize that the effectiveness of a firm's response strategy following a violation depends on the nature of the violation and the reputational judgment being made. We test our hypotheses using two longitudinal violation samples and novel media‐based measures of reputation. Generally, we find that a more accommodative strategy is an effective defense following a capability violation, but it is less effective following a character violation. In supplemental analyses, we also discover that a more accommodative strategy is less effective at managing general reputation. Ultimately, our theory and findings suggest that reputation defense is more complex than previously considered. Managerial Summary We shed light on the challenges managers face in defending their multiple reputations following a violation. We suggest that the type of violation affects stakeholders' expectations of the firm, and that these expectations differentially threaten a firm's multiple reputations as well as the efficacy of its response strategy. Using a sample of capability‐based (unintentional financial restatements) and character‐based (environmental malfeasance) violations, we find that a more accommodative response strategy can defend certain reputations following a capability‐based violation but can be detrimental to other reputations. We also find accommodativeness to be generally harmful following a character‐based violation. Ultimately, our results suggest that managers should consider both the type of reputation they are defending and the nature of the violation when implementing a response strategy.

Date: 2021
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