How the severity gap influences the effect of top actor performance on outcomes following a violation

John R. Busenbark, Nathan T. Marshall, Brian P. Miller and Michael D. Pfarrer

Strategic Management Journal, 2019, vol. 40, issue 12, 2078-2104

Abstract: Research Summary Violation severity represents an important contextual factor in explaining the extent to which top actor performance is a benefit or burden following a negative event. Research often conflates how observers perceive an event with its objective severity, however, while ignoring the potential divergence between both types. We therefore introduce the severity gap, which reflects the degree to which perceived and objective violation severity diverge, and we theorize about how it informs the degree to which top actor performance offers benefits or burdens for these actors. We hypothesize and find that internal stakeholders shield strong performing top actors when the severity gap is high, but that performance is less salient to external stakeholders who distance themselves from these top actors. Managerial Summary Organizations embroiled in violations are often subject to formal assessments of the severity of the event as well as the court of public opinion. Yet researchers have largely conceptualized objective and perceived violation severity as mirrors of each another. We question if this captures what actually unfolds in the marketplace, particularly given the myriad examples of when violations resonate more strongly with observers than the objective severity would suggest, or vice versa. We examine how the gap between perceived and objective violation severity influences how much insiders and outsiders are concerned with top actor performance when considering which outcomes top actors encounter after the negative event. Our results suggest that insiders shield top performers as the severity gap increases, but that outsiders remain increasingly skeptical.

Date: 2019
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