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When a Sinner Does a Good Deed: The Path‐Dependence of Reputation Repair

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  • Haibing Shu
  • Sonia Man‐Lai Wong

Abstract

This study examines how shareholders will interpret a socially desirable action taken by firms with a damaged corporate reputation status. We first explain theoretically why shareholders’ path‐dependent judgments of a tainted firm increase the likelihood of shareholders making less favourable judgments of the firm's socially desirable actions. We then test the theoretical predictions using a sample of Chinese listed firms that were sanctioned for securities fraud and subsequently made donations to the 2008 Sichuan earthquake relief funds. We find that the shareholders evaluate the donations made by fraud‐tainted firms less favourably than those made by firms that have not been sanctioned for fraud. Furthermore, the shareholders’ evaluations of the donations made by fraud‐tainted firms is less favourable if the firms have committed more serious fraud and undertaken fewer positive remedial actions in the post‐fraud period. Overall, our evidence demonstrates that shareholders’ path‐dependent judgments of fraud‐tainted firms constitute a major obstacle that constrains the effectiveness of reputation repair.

Suggested Citation

  • Haibing Shu & Sonia Man‐Lai Wong, 2018. "When a Sinner Does a Good Deed: The Path‐Dependence of Reputation Repair," Journal of Management Studies, Wiley Blackwell, vol. 55(5), pages 770-808, July.
  • Handle: RePEc:bla:jomstd:v:55:y:2018:i:5:p:770-808
    DOI: 10.1111/joms.12312
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    Cited by:

    1. Zheng, Di & Lei, Lei & Wang, Licheng & Li, Xuefeng, 2024. "Inhibiting or promoting: The impact of corporate social responsibility on corporate financialization," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 1404-1421.
    2. Qian, Kun & Shi, Bingjie & Song, Yunling & Wu, Hao, 2023. "ESG performance and loan contracting in an emerging market," Pacific-Basin Finance Journal, Elsevier, vol. 78(C).
    3. Ayed, Sabrine & Waxin, Timothée, 2023. "LGBT discrimination and harassment, firm value, and reputation repair," International Review of Financial Analysis, Elsevier, vol. 90(C).
    4. Song, Yunling & Wu, Hao & Ma, Yan, 2023. "Does ESG performance affect audit pricing? Evidence from China," International Review of Financial Analysis, Elsevier, vol. 90(C).
    5. Wang, Yujie & Tsang, Albert & Xiang, Yi & Yao, Daifei (Troy), 2023. "Corporate social responsibility misconduct and formation of board interlocks," Journal of Financial Stability, Elsevier, vol. 67(C).

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