What is the Share Price Reaction to Organizational Social Misconduct?

Abstract

While the consequences of committing illegal misconduct are undoubtedly negative, the outcomes of social misconduct, a behavior that contravenes the values and norms of society, are unclear. Combining literature on organizational misconduct and institutional theory, this paper develops a theoretical framework predicting that social misconduct harms companies’ performance more when (a) the norm is less ambiguous, (b) when the infringement is more salient and (c) it is committed in the company’s local environment. Results from this event study analysis show that social misconduct does not generate negative price response, not even when the norm is less ambiguous and the infringement receives high media attention. Thus, this paper adds a new piece in the puzzling picture that links non-conforming actions to performance. Contributions to organizational misconduct, institutional theory and strategy research are discussed.