Ownership Structure, Reputation Crises and Recovery: Theory and Experiment

37 Pages Posted: 27 Jun 2018

See all articles by Thomas H. Noe

Thomas H. Noe

University of Oxford - Said Business School; University of Oxford - Balliol College; Bank of Finland; European Corporate Governance Institute

Michael J. Rebello

University of Texas at Dallas - Naveen Jindal School of Management

Thomas Rietz

University of Iowa - Henry B. Tippie College of Business

Date Written: June 25, 2018

Abstract

We model the repair of damaged corporate reputations through organizational structure reform. In a rational-choice framework our model explains the effects of the emergence and growth of the professional reputation-crisis management industry. The model produces two key conclusions: (a) Although, ex post, reputation repair can increase firm value, ex ante, the option to repair reputation dilutes the incentive to maintain reputation. (b) Separating ownership and control by delegating management to professionals can ameliorate this dilution. An experimental implementation of the model supports these conclusions and shows that they are robust to behavioral deviations from rational-choice behavior.

Keywords: adverse selection, reputation, experiment

JEL Classification: C7, C9, D82, G31, G32, L15

Suggested Citation

Noe, Thomas H. and Rebello, Michael J. and Rietz, Thomas A., Ownership Structure, Reputation Crises and Recovery: Theory and Experiment (June 25, 2018). Available at SSRN: https://ssrn.com/abstract=3203697 or http://dx.doi.org/10.2139/ssrn.3203697

Thomas H. Noe

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 3BJ
United Kingdom

University of Oxford - Balliol College ( email )

Broad St
Oxford, OX1 3BJ
United Kingdom

Bank of Finland ( email )

P.O. Box 160
FIN-00101 Helsinki
Finland

European Corporate Governance Institute ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Michael J. Rebello

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

Thomas A. Rietz (Contact Author)

University of Iowa - Henry B. Tippie College of Business ( email )

C108 PBB, Suite S244
Iowa City, IA 52242-1994
United States
319-335-0856 (Phone)
319-335-3690 (Fax)

HOME PAGE: http://tippie.uiowa.edu/people/profile/profile.aspx?id=195021

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