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Can Ratings Have Indirect Effects?: Evidence from the Organizational Response to Peers' Environmental Ratings

Forthcoming, American Sociological Review

59 Pages Posted: 30 Aug 2014 Last revised: 18 Sep 2014

Amanda J. Sharkey

University of Chicago - Booth School of Business

Patricia Bromley

University of Utah

Date Written: August 29, 2014

Abstract

Organizations are increasingly subject to rating and ranking by third-party evaluators. Research in this area tends to emphasize the direct effects of ratings systems that occur when ratings give key audiences, such as consumers or investors, more information about a rated firm. Yet, ratings systems may also indirectly influence organizations when the collective presence of more rated peers alters the broader institutional and competitive milieu. Rated firms may be more responsive to ratings systems when surrounded by more rated peers, and ratings may generate diffuse or spillover effects even among firms that are unrated. We test these arguments by analyzing how rated and unrated firms change their pollution behavior when more firms in their peer group are rated on environmental performance. Results indicate that the presence of more rated peers was often associated with emissions reductions. However, this relationship varies by the whether a firm was rated, whether the rating was positive or negative (if rated), and, often, features of the competitive and regulatory environment.

Keywords: ratings, peers, environment, institutional theory, corporate social responsibility

Suggested Citation

Sharkey, Amanda J. and Bromley, Patricia, Can Ratings Have Indirect Effects?: Evidence from the Organizational Response to Peers' Environmental Ratings (August 29, 2014). Forthcoming, American Sociological Review. Available at SSRN: https://ssrn.com/abstract=2489170

Amanda J. Sharkey (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Patricia Bromley

University of Utah ( email )

1645 E. Campus Center
Salt Lake City, UT 84112
United States

HOME PAGE: http://www.patriciabromley.com

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