Rebuilding a Shattered Reputation: Financial Reporting Quality and Donations Following Corporate Controversies
48 Pages Posted: 21 Nov 2019 Last revised: 10 Apr 2020
Date Written: April 10, 2020
We examine the consequences of controversies on corporate reputation and identify two reputation-building strategies that companies are adopting to restore their trust relationships with stakeholders in the aftermath of media condemnation. In particular, we find that in the post-controversy period, firms take a bolstering strategy of reducing their discretionary accruals and endeavour to restore their reputation by engaging more actively in philanthropic activities. Such behaviour coheres with the image repair theory propounded by (Benoit, 1995). While boosting financial reporting quality proves marginally more efficacious than charitable giving, our findings indicate that reputation is easily tarnished, but difficult to rebuild.
Keywords: Controversies; Corporate Reputation; Donations; Reporting Quality
JEL Classification: D22; D64; G32; G41
Suggested Citation: Suggested Citation