Mixed Messages: Crisis Communication–Dismissal (In)Coherence and Shareholder Trust Following Misconduct

Abstract

We explore how firms’ post-transgression crisis communication and executive dismissals jointly influence shareholder trust following financial misconduct. We argue the coherence of a firm’s crisis management strategy—the degree to which its elements fit together consistently and logically—plays an important but previously unconsidered role in shareholder trust repair. We utilized multiple methods to abductively develop and test our theory. First, we conducted a qualitative comparative analysis of 51 cases of financial misconduct among S&P 1500 firms that disclosed a misstatement via press release and dismissed either the CEO or CFO within 90 days of the disclosure. Analyzing aspects of these firms’ crisis communication and the type of dismissal executed, this study revealed four configurations that highlight the influence of crisis management (in)coherence on shareholder trust. Second, a policy capturing study examined the underlying mechanisms that drive shareholders’ perceptions and intended behaviors relative to manipulated crisis management strategies in a controlled setting. Together, findings from these studies indicate that shareholder trust following misconduct depends in part on the (in)coherence between what firms say about their misconduct, how they communicate that information, and what they do to resolve the problem.