When a Sinner Does a Good Deed: The Path‐Dependence of Reputation Repair

39 Pages Posted: 12 Jun 2018

See all articles by Haibing Shu

Haibing Shu

Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management

Sonia Man-Lai Wong

Sun Yat-Sen University (SYSU) - Department of Finance and Insurance

Date Written: July 2018

Abstract

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.

Keywords: corporate philanthropic disaster response, event study, path dependence, reputation repair

Suggested Citation

Shu, Haibing and Wong, Sonia Man-Lai, When a Sinner Does a Good Deed: The Path‐Dependence of Reputation Repair (July 2018). Journal of Management Studies, Vol. 55, Issue 5, pp. 770-808, 2018, Available at SSRN: https://ssrn.com/abstract=3192249 or http://dx.doi.org/10.1111/joms.12312

Haibing Shu

Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management ( email )

No.1954 Huashan Road
Shanghai Jiao Tong University
Shanghai, Shanghai 200052
China

Sonia Man-Lai Wong (Contact Author)

Sun Yat-Sen University (SYSU) - Department of Finance and Insurance ( email )

Tuen Mun
Hong Kong

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