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Organizations Non Gratae? The Impact of Unethical Corporate Acts on Interorganizational Networks

Organizational Science, Vol. 18, No. 1, pp. 55-70, January-February 2007

HKUST Business School Research Paper No. 07-18

17 Pages Posted: 23 Jul 2007  

Bilian Ni Sullivan

Hong Kong University of Science & Technology; Hong Kong University of Science & Technology (HKUST) - Department of Management & Organization

Pamela Haunschild

University of Texas at Austin - Red McCombs School of Business

Karen Page

University of Wyoming

Abstract

In this study, we examine the effects of illegal/unethical acts on interfirm networks. We hypothesize that the quality of network partners will decline and overall network structure will change after a firm commits an unethical act. More specifically, we posit that the decline in partner quality is primarily driven by higher quality firms leaving the network, and the focal firm being forced to replace them with lower quality ones. We also propose that partner prominence and network cohesion will be affected after these acts, and that the change in partner quality and network structure will be greater for those acts perceived as more illegitimate. We test these hypotheses using a sample of 200 large firms in the United States and data on unethical acts by these firms. Our results show that the quality of a firm's network partners declines after the firm's commission of an unethical act, and that the deterioration in partner quality tends to be greater for acts of greater illegitimacy. Our results also show declines in network prominence and cohesion for firms involved in these activities. We discuss the implications of our results for the literatures on interfirm networks and unethical corporate activities.

Keywords: legitimacy, networks, unethical acts

Suggested Citation

Sullivan, Bilian Ni and Haunschild, Pamela and Page, Karen, Organizations Non Gratae? The Impact of Unethical Corporate Acts on Interorganizational Networks. Organizational Science, Vol. 18, No. 1, pp. 55-70, January-February 2007; HKUST Business School Research Paper No. 07-18. Available at SSRN: https://ssrn.com/abstract=1002268

Bilian Ni Sullivan (Contact Author)

Hong Kong University of Science & Technology ( email )

Clearwater Bay
Kowloon, 999999
Hong Kong

Hong Kong University of Science & Technology (HKUST) - Department of Management & Organization ( email )

Clear Water Bay, Kowloon
Hong Kong

Pamela Haunschild

University of Texas at Austin - Red McCombs School of Business ( email )

Austin, TX 78712
United States

Karen Page

University of Wyoming ( email )

Box 3434 University Station
Laramie, WY 82071
United States

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