The Effect of Nonmarket Strategies on Reputation in the Eyes of Experts: Uncovering Microfoundations

Abstract

Corporate political activity (CPA) and corporate social responsibility (CSR) are two nonmarket strategies that have been argued to jointly affect firm reputation. But little is known about the impact of CPA on reputation, the microfoundations of this relationship, and the interplay with CSR. Building on the social judgment literature, we propose that perceptions of warmth and competence explain how nonmarket activities – here, CSR, controversies, and CPA – are evaluated by experts. We performed two experiments and a QCA-study of large US firms to test how nonmarket activities, in isolation and combination, affect firm reputation. We find that CPA reduces warmth and increases competence perceptions and has an overall negative effect on reputation. In the presence of other nonmarket activities, however, the effect of CPA is only marginal while CSR is a strong driver of reputation. In addition, we show that CSR can cushion firm reputation against the reputational costs of controversies.