Reputation-Building Actions After Corporate Social Irresponsibility

58 Pages Posted: 28 Dec 2022 Last revised: 21 May 2024

See all articles by Wei Cai

Wei Cai

Columbia Business School

Aneesh Raghunandan

Yale School of Management

Shivaram Rajgopal

Columbia University - Columbia Business School, Accounting, Business Law & Taxation

Wenxin Wang

Harvard University - Business School (HBS)

Date Written: May 15, 2024

Abstract

We examine the nature of firms’ reputation-building actions in response to major violations of environmental and social (labor and consumer safety) laws. To do so, we construct a novel dataset of potential reputation-building actions taken by firms, based on hand-classification of 21,932 press releases, in the years preceding and after a major violation (e.g., an oil spill or a major labor lawsuit verdict). We find that while firms do take more reputation-building actions after being exposed for engaging in serious environmental or social misconduct, these actions typically do not benefit the stakeholders affected by the underlying violation. Instead, firms appear to target reputation-building actions at consumers irrespective of the underlying type of violation, and target employees and shareholders after environmental (but not social) violations. In terms of consequences, we find that taking more environmental (social) actions is associated with lower future reductions in penalties for environmental (social) violations. Finally, the stock market responds positively to reputation-building actions targeted at shareholders and customers but not at other stakeholder groups, consistent with investors’ motives on aggregate being financial rather than prosocial.

Keywords: reputation repair, corporate social responsibility, ESG, labor violation, environmental violation

JEL Classification: M14, G23, G34, M41

Suggested Citation

Cai, Wei and Raghunandan, Aneesh and Rajgopal, Shivaram and Wang, Wenxin, Reputation-Building Actions After Corporate Social Irresponsibility (May 15, 2024). Available at SSRN: https://ssrn.com/abstract=4305248 or http://dx.doi.org/10.2139/ssrn.4305248

Wei Cai

Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

Aneesh Raghunandan (Contact Author)

Yale School of Management ( email )

165 Whitney Ave
New Haven, CT 06511

Shivaram Rajgopal

Columbia University - Columbia Business School, Accounting, Business Law & Taxation ( email )

3022 Broadway
New York, NY 10027
United States

Wenxin Wang

Harvard University - Business School (HBS) ( email )

Boston, MA 02163
United States

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