In or out? Exploring effects of being ranked for high reputation

Abstract

As third-party evaluations like the Fortune 500 or USNWR rankings have become widespread, they have been shown to affect a variety of firm outcomes. As a consequence, a consensus has emerged in the literature that appearing in a ranking measure provides a signal of quality to stakeholders that will eventually benefit the receiving firm. Using signaling theory, we challenge this view, arguing that for high reputation firms, not only the direction, but also the consistency of the signal that comes with appearing in a ranking measure determine organizational outcomes like stakeholder interest. We propose that the inconsistent signals that come with entering and leaving a ranking measure make stakeholders question the quality of high reputation firms, such that not appearing in a ranking measure can provide a more consistent signal of quality, leading to increased stakeholder interest. We test our hypotheses in context of the global field of business schools using a novel data set from the Financial Times Global MBA rankings. Our findings provide broad support for our hypotheses. We conclude that appearing in a ranking measure can have unintended negative consequences for firms, and discuss the implications of our findings for the literature on rankings and reputation.