De-Escalate Commitment? Firm Responses to the Threat of Negative Reputation Spillovers from Alliance Partners’ Environmental Misconduct

Abstract

When faced with the threat of negative reputation spillover from an alliance partner accused of environmental misconduct, the focal firm must decide whether to adopt a supportive or non-supportive response. We argue that this decision denotes a commitment escalation dilemma, but that factors previously found to increase escalation tendencies lead to de-escalation in our crisis contagion context. Specifically, we derive four hypotheses from this reverse effect proposition, and test these using a policy-capturing survey targeting Norwegian CEOs. We found that firms are more likely to select an adversary response when the alliance is of high strategic importance and has high termination costs. Conversely, firms are more likely to select an advocacy response when the alliance is of low strategic importance and has low termination costs and when the CEO was not involved in the formation of the alliance. Overall, our study answers a call for a more nuanced understanding of commitment escalation and the theory’s boundary conditions by introducing reputation spillover crisis as a contextual influencer of escalation behavior. It also extends the reputation literature and provides new evidence that reputation concerns can instigate ethical decision-making.