Organizational Response to Public Attacks of Rivals: A categorization perspective

Abstract

When a focal firm’s rivals are publicly attacked for an alleged violation of industry norms, a risk of contamination spreads to all members associated with the industry category. The more intense the attacks on rivals, the more likely audiences will stereotype the industry category and generalize to all members of that industry category the negative attributes implied by the attacks. In this paper, we suggest that the intensity of the public attacks of rivals leads to a greater likelihood that a focal firm will respond to avoid contamination. As the risk of generalization increases, firms tend to dissociate themselves from the tainted industry category by altering their business portfolio. They do so in relation to their own degree of prototypicality (i.e., how much they resemble the average member of the tainted category). We use panel data on the global defense industry between 1996 and 2007 to test our hypotheses. Results support our claims that (1) the public attacks of rivals drive a firm’s dissociation from the targeted industry and (2) this dissociation is attenuated for less prototypical firms.