Potential alliance partners' reactions to focal firm misconduct: Incongruence across capability and character reputation

The significance of organisational reputation has long been recognised. However, there remains ambiguity surrounding its impact on adverse events. To examine how a focal firm's reputation influences the responses of potential alliance partners to its misconduct, we differentiate between two types of reputation as identified in previous studies: character and capability reputation. Building upon the cue diagnosticity theory, we formulate our central theoretical mechanism, referred to as the socio-cognitive process, to propose that the responses of potential partners to misconduct by a focal firm are contingent upon their evaluations of the distinct dimensions of reputation. Our findings indicate that potential alliance partners respond positively to the focal firm's capability reputation following instances of misconduct, while exhibiting a negative response towards character reputation. We also found a negative interaction effect between the two dimensions of reputation such that the negative effect of character reputation weakens when capability reputation is high. Additionally, we observed that the detrimental impact of character reputation is amplified when potential partners operate in regions characterised by high levels of public integrity. Our study makes valuable contributions to the existing research on organisational reputation and strategic alliances.