Project

The Consequences of Scandals on Organizational Competition

Goal: Recent works have documented the dark side of scandals, revealing how
they spread, contaminate associated organizations, and taint the
perception of entire fields. We complement this line of work by exploring
how scandals durably affect competition within a field, translating into
relative advantages for certain organizations over others. First, scandals
may benefit organizations that provide a close substitute to the offerings of the implicated organization. Second, scandals pave the way for moralizing discourses and practices, shake taken-for-granted assumptions about the moral standing of organizations, and result in a shift in the criteria used to evaluate organizations within the field. Our arguments suggest that organizations whose offerings are most similar to those of the implicated organization, yet perceived as enforcing stricter moral standards, are likely to benefit the most from a scandal. We find support for these arguments in a county-level study of membership in the Catholic Church and sixteen other Christian denominations in the United States in the wake of a series of sex abuse cases perpetrated by Catholic clergy between 1971 and 2000. This study contributes to our understanding of the competitive effects of scandals on organizations, and carries important implications for the management of organizations in scandal-stricken fields.

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Julien Jourdan
added a research item
We explore how the social media attention received by a firm implicated in a large corporate scandal affects the market value of its competitors. Existing work provides contrasted arguments and evidence regarding the spillover effects of scandals: rivals may suffer from contamination and at the same time benefit from substitution. Building on and extending prior work, we develop a stylized model to predict how contamination and substitution interact and jointly affect firms' value in a non-linear way during the course of a scandal. We test our model using unique data, including 1.2m tweets, on the Dieselgate scandal that affected the global automobile industry in 2015. We find evidence of an inverted-U shape relationship between social media attention and rival firms' value at the global scale, suggesting that substitution dominates on average. Yet the pattern is reversed for German and other European firms, primarily affected by contamination. We discuss how the study contributes to the literature on corporate scandal and disapproval, with implications for the understanding of the impact of social media on organizations.
Julien Jourdan
added an update
We explore how foreign MNEs strategically respond to political stigmatization, that is, deliberate attempts by government officials at publicly discrediting firms. The documented strategies MNEs may use to mitigate their liability of foreignness, which require sustained effort over time, may not be effective to cope with a sudden rise of hostility in a host country. We predict that MNEs’ responses involve a combination of buffering and bridging corporate political activities. Because stigma makes targeted MNEs undesirable partners to politicians, these firms may increase lobbying expenses in critical issues related to the stigma to buffer their operations from external turbulence, mostly through external lobbyists. Targeted MNEs may also increase donations to political candidates less likely to participate in stigmatization as a way to bridge with more supportive political audiences in the long term. We test and find support for these ideas in a quasi-experiment that exploits the exogenous assignment of political stigmatization to MNEs coming from the United Nations Security Council’s member countries opposing the US-led Iraq invasion in 2003. We estimate differences-in-differences parameters in a sample of 977 different MNEs in 137 different industries, spanning from 1998 to 2007. Our results extend the literature by showing how MNEs respond to sudden increases in liability of foreignness, and by offering a clearer causal mechanism of its effects on MNE political activity. Moreover, differently from previous work on the interaction between social and political strategies that portray politicians as evaluators of firms’ social performance, we show how firms strategically adjust their political strategies when politicians actively seek to damage their sociopolitical capital.
 
Julien Jourdan
added 2 research items
Recent works have documented the dark side of scandals, revealing how they spread, contaminate associated organizations, and taint the perception of entire fields. We complement this line of work by exploring how scandals durably affect competition within a field, translating into relative advantages for certain organizations over others. First, scandals may benefit organizations that provide a close substitute to the offerings of the implicated organization. Second, scandals pave the way for moralizing discourses and practices, shake taken-for-granted assumptions about the conduct of organizations, and result in a shift in the criteria used to evaluate organizations within the field. Our arguments suggest that organizations whose offerings are most similar to those of the implicated organization, yet perceived as enforcing stricter standards of conduct, are likely to benefit the most from a scandal. We find support for these arguments in a county-level study of membership in the Catholic Church and sixteen other Christian denominations in the United States in the wake of a series of sex abuse cases perpetrated by Catholic clergy between 1971 and 2000. This study contributes to our understanding of the competitive effects of scandals on organizations, and carries important implications for the management of organizations in scandal-stricken fields.
In this article, we attempt to build a comprehensive theory of the intra- and inter-organizational effects of scandals. In so doing, we develop and test distinct mechanisms regarding the effects of scandals on: 1) the focal organization; 2) organizations similar to it (bystanders); and 3) all organizations sharing the same form. First, drawing on the social identity theory literature, we argue that the damage incurred by the focal organization due to scandals will be contingent on its size. Second, we develop and test two competing hypotheses regarding the effects of scandals on bystander organizations: contamination, whereby organizations that are similar to the scandal-struck one are cognitively assimilated and penalized, and substitution, which would predict that similar organizations would benefit from the penalties suffered by the focal organization. Finally, we contend that scandals—which we conceptualize as expressions of moral deficiency made public— generate a shift in evaluation criteria which will cause audiences to place a premium on organizations that display features running counter to the scandal’s core features. A county-level study of religious adherence to the Catholic Church and sixteen other Christian denominations in the United States in the wake of sex abuse cases perpetrated by Catholic priests between 1971 and 2000 provides empirical support for our theory.
Julien Jourdan
added an update
Conditionally accepted, AMJ.
 
Julien Jourdan
added a project goal
Recent works have documented the dark side of scandals, revealing how
they spread, contaminate associated organizations, and taint the
perception of entire fields. We complement this line of work by exploring
how scandals durably affect competition within a field, translating into
relative advantages for certain organizations over others. First, scandals
may benefit organizations that provide a close substitute to the offerings of the implicated organization. Second, scandals pave the way for moralizing discourses and practices, shake taken-for-granted assumptions about the moral standing of organizations, and result in a shift in the criteria used to evaluate organizations within the field. Our arguments suggest that organizations whose offerings are most similar to those of the implicated organization, yet perceived as enforcing stricter moral standards, are likely to benefit the most from a scandal. We find support for these arguments in a county-level study of membership in the Catholic Church and sixteen other Christian denominations in the United States in the wake of a series of sex abuse cases perpetrated by Catholic clergy between 1971 and 2000. This study contributes to our understanding of the competitive effects of scandals on organizations, and carries important implications for the management of organizations in scandal-stricken fields.