Saving Face: How Exit in Response to Negative Press and Star Analyst Downgrades Reflects Reputation Maintenance by Directors

Academy of Management Journal, Forthcoming

Mays Business School Research Paper No. 3008858

Posted: 28 Jul 2017 Last revised: 14 Apr 2018

See all articles by Joseph Harrison

Joseph Harrison

Texas Christian University

Steven Boivie

Texas A&M University - Department of Management

Nathan Y. Sharp

Texas A&M University - Department of Accounting

Rich Gentry

University of Mississippi - Department of Management

Date Written: June 1, 2017

Abstract

This paper explores the extrinsic and intrinsic motivations driving individual level responses to reputational threats in the context of the director labor market. Integrating work on reputation with self-determination and identity theories, we theorize that negative attention from the media and star equity analysts threatens directors' reputations, motivating proactive behavior to mitigate both the external and internal consequences of reputation damage. Using a sample of directors of S&P 1500 firms between 2003 and 2014, we argue and find that negative media coverage and downgrades by star equity analysts are positively related to director exit, even after controlling for firm performance, overall media visibility, and negative events such as lawsuits and financial restatements. We also find that director status intensifies the effect of negative media coverage on exit, serving as the board chair attenuates the effect of star analyst downgrades on exit, and director tenure intensifies the effects of both negative media coverage and star downgrades on exit. In post-hoc testing, we provide further evidence of director reputation maintenance by demonstrating the counterintuitive finding that negative attention from the media and star analysts also increases directors' likelihood of joining the boards of other S&P 1500 firms.

Keywords: Reputation Maintenance, Self-Determination Theory, Identity Theory, Director Exit, Media Attention, Star Equity Analysts, Stock Downgrades

Suggested Citation

Harrison, Joseph and Boivie, Steven and Sharp, Nathan Y. and Gentry, Richard J., Saving Face: How Exit in Response to Negative Press and Star Analyst Downgrades Reflects Reputation Maintenance by Directors (June 1, 2017). Academy of Management Journal, Forthcoming; Mays Business School Research Paper No. 3008858. Available at SSRN: https://ssrn.com/abstract=3008858

Joseph Harrison (Contact Author)

Texas Christian University ( email )

Fort Worth, TX 76129
United States

Steven Boivie

Texas A&M University - Department of Management ( email )

430 Wehner
College Station, TX 77843-4218
United States

Nathan Y. Sharp

Texas A&M University - Department of Accounting ( email )

4353 TAMU
College Station, TX 77843-4353
United States
979-845-0338 (Phone)

Richard J. Gentry

University of Mississippi - Department of Management ( email )

United States
662-259-0163 (Phone)

HOME PAGE: http://faculty.bus.olemiss.edu/rgentry/

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