Reputation and Corporate Social Responsibility Aberrations, Trends, and Hypocrisy: Reactions to Firm Choices in the Stock Option Backdating Scandal

24 Pages Posted: 23 Sep 2011

See all articles by Jay Janney

Jay Janney

University of Dayton - Department of Management

Steve Gove

affiliation not provided to SSRN

Date Written: November 2011

Abstract

Drawing on strategic corporate social responsibility (CSR) and reputation theory, this paper examines the market reaction to firm disclosures of involvement in the US stock option backdating scandal. We examine how a firm's prior signals regarding ethical behaviour and values, as demonstrated through CSR initiatives, may both ameliorate and exacerbate market reactions. CSR initiatives may buffer a firm against general wrong‐doing but expose it to greater scrutiny and sanction for related wrong‐doing. Our results show that firms with enhanced overall reputations for CSR are partially buffered from scandal revelations. However, we find that when firms possess an enhanced reputation for CSR associated with corporate governance, violations pertaining specifically to governance are viewed as hypocritical and more harshly sanctioned. We also find lower and negative market reactions for firms that delay but self‐disclose their involvement in the scandal. The study extends the emergent, related literatures on strategic CSR and reputation management, and documents dynamics in the relationship between corporate social and financial performance.

Suggested Citation

Janney, Jay and Gove, Steve, Reputation and Corporate Social Responsibility Aberrations, Trends, and Hypocrisy: Reactions to Firm Choices in the Stock Option Backdating Scandal (November 2011). Journal of Management Studies, Vol. 48, Issue 7, pp. 1562-1585, 2011, Available at SSRN: https://ssrn.com/abstract=1932521 or http://dx.doi.org/10.1111/j.1467-6486.2010.00984.x

Jay Janney (Contact Author)

University of Dayton - Department of Management ( email )

United States

Steve Gove

affiliation not provided to SSRN

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