Undeserved loss: The spread of legitimacy loss to innocent organizations in response to reported corporate deviance

Stefan Jonsson, Henrich R. Greve, Takako Fujiwara-Greve

Research output: Contribution to journalArticlepeer-review

174 Citations (Scopus)

Abstract

This paper theorizes about why discoveries of corporate deviance that damage the legitimacy of the responsible organization may also have consequences for other organizations. We propose that audiences generalize from deviance by one organization to others that are similar. The result is a withdrawal from transactions even from non-culpable organizations as audiences seek to avoid organizations that they associate with a deviant act. We show that two scandals involving Skandia AB, a Swedish insurance firm that had a subsidiary offering mutual funds, affected mutual fund providers owned by other insurance firms in 2000-2004, as well as mutual fund subsidiaries of other firms with similar characteristics. The effect was greatest for firms more similar to Skandia and firms owning real estate, which was the context for one of the scandals. Thus audience members' categorization rules lead to spread of legitimacy loss in response to an isolated act of organizational deviance.

Original languageEnglish
Pages (from-to)195-228
Number of pages34
JournalAdministrative Science Quarterly
Volume54
Issue number2
DOIs
Publication statusPublished - 2009 Jun

ASJC Scopus subject areas

  • Arts and Humanities (miscellaneous)
  • Sociology and Political Science
  • Public Administration

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