Why 'Good' Firms Do Bad Things: The Effects of High Aspirations, High Expectations and Prominence on the Incidence of Corporate Illegality

Academy of Management Journal, Vol. 53, No. 4, pp. 701-722, August 2010

22 Pages Posted: 12 Feb 2011

See all articles by Yuri Mishina

Yuri Mishina

Imperial College London

Bernadine Johnson Dykes

Michigan State University

Emily S. Block

University of Notre Dame

Timothy Pollock

Penn State University - Smeal College of Business

Date Written: August 1, 2010

Abstract

Recent high-profile corporate scandals involving prominent, high-performing firms cast doubt on assertions that the costs of getting caught decrease the likelihood such high performers will act illegally. We explain this paradox by using theories of loss aversion and hubris to examine a sample of S&P 500 manufacturers. Results demonstrate that both performance above internal aspirations and performance above external expectations increase the likelihood of illegal activities. The sample firms’ prominence enhanced the effects of performance above expectations on the likelihood of illegal actions. Prominent and less prominent firms displayed different patterns of behavior when their performance failed to meet aspirations.

Keywords: Prospect Theory, Reputation, Corporate Illegality

Suggested Citation

Mishina, Yuri and Dykes, Bernadine Johnson and Block, Emily S. and Pollock, Timothy, Why 'Good' Firms Do Bad Things: The Effects of High Aspirations, High Expectations and Prominence on the Incidence of Corporate Illegality (August 1, 2010). Academy of Management Journal, Vol. 53, No. 4, pp. 701-722, August 2010. Available at SSRN: https://ssrn.com/abstract=1759437

Yuri Mishina (Contact Author)

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

Bernadine Johnson Dykes

Michigan State University ( email )

Agriculture Hall
East Lansing, MI 48824-1122
United States

Emily S. Block

University of Notre Dame ( email )

361 Mendoza College of Business
Notre Dame, IN 46556-5646
United States

Timothy Pollock

Penn State University - Smeal College of Business ( email )

University Park, PA 16802
United States

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