Status, Celebrity, and Misconduct Spillovers to Bystanders

Abstract

Organizational misconduct often has ramifications that affect innocent bystander firms—that is, create positive and/or negative spillovers. However, limited research has explored what determines the valence of such spillovers. We argue that perpetrators’ and bystanders’ status and celebrity, and their distinctive sociocognitive content, determine the direction and magnitudes of spillovers to bystanders. High-status perpetrators engender negative spillovers by signaling audiences that other firms are similarly fallible whereas celebrity perpetrators, due to their atypicality among peers, incur positive spillovers by being considered individual aberrations. Bystanders’ status and celebrity further shape the spillovers by providing interpretive frames through which to process the implications of high-status and celebrity firms’ misconduct. Our findings based on the corporate data breaches in 2018 confirmed the effects of perpetrator firms’ status and celebrity on the likelihood of positive and negative spillovers to innocent, S&P 500 bystanders. Bystanders’ status amplified the positive spillover from celebrity firms’ data breaches, while their celebrity attenuated the negative spillover from high-status firms’ breaches and amplified the positive spillover from celebrity firms’ breaches. This study contributes to research on misconduct spillovers by examining both positive and negative spillovers and delineating the antecedents of the valence of the spillovers. It contributes to the social evaluations literature by identifying the role social approval assets play in stakeholders’ post-misconduct sensemaking.