The Benefits and Burdens of High and Low Social Approval Assets in Employment Restructuring

Abstract

Prior research remains divided whether social approval assets are a benefit or burden when external observers make sense of firm behavior. By drawing on expectancy violation theory in the context of announcements of different types of restructuring decisions (i.e., downsizing and upsizing), we examine the conditions under which high and low social approval assets provide a benefit and burden. We do so by assessing the corresponding media coverage about these decisions. Our results of all restructuring announcements of firms in Germany between 2006 – 2019 suggest the following: high social approval firms face a burden in negatively perceived situations (i.e., downsizing announcements), whereas low social approval firms enjoy a buffer as media coverage is not as negative. In contrast, in positive situations (i.e., upsizing announcements), high social approval is of benefit as it translates into more favorable media coverage, whereas low social approval is a burden. The results of this study contribute to the discussion about the equivocal effects of social approval assets on external observers sensemaking. Our theorizing and empirical results explain in which situations, high or low social approval can be beneficial and burdensome for the same organization. Specifically, the context in which a high or low social approval actors are evaluated by external observers helps explain which mechanisms is more dominant.