It’s Not Just All About the Money: The Effects of Scandals on Organizational Affiliation and Competition

Abstract

This paper investigates the effects of scandals on organizational affiliation and competition. We introduce a novel framework that links the conceptual origin of a scandal, i.e., individual-caused vs. institutional-caused, with its impact on an organization or its competition, i.e., a scandal-stricken organization vs. the scandal- stricken organization’s competitors. In our analysis, we exploit the changes in diocese-level and regional church-level indicators of church affiliation that followed numerous scandals that occurred in German Catholic dioceses and Protestant regional churches between 2002 and 2016. We find that both individual-caused and institutional-caused scandals are associated with a local decline in affiliation with a scandal-stricken organization. However, individual-caused scandals have a significantly larger effect on affiliation with a scandal- stricken organization than institutional-caused scandals. We also find evidence for a scandal’s local interorganizational spillover effects to the scandal-stricken organization’s competitors, but only for institutional-caused scandals. Our results thus contribute to the emerging field of studies on the effects of scandals on organizations and their stakeholders. Moreover, due to the economic character of religious organizations, i.e., they compete in a religious market to provide pastoral care, our results can be generalized beyond our empirical setting to secular organizations and their stakeholders.