Corporate Reputational Risk Research Articles

The equity market response to climate change litigation

We document a significant decline in defendants' stock prices after the filing of litigation cases on climate change issues in the US. Economically, we document a 0.5% decline on the filing day and a 2.7% cumulative abnormal decline in the eight days following the filing. Cross-sectional analysis shows that the negative response is more pronounced in firms with greater external financial constraints, higher cash flow volatility, and lower environmental, social, and governance ratings. The difference-in-differences analysis shows a decline in total and responsible institutional ownership and an increase in corporate reputation risk after a climate change litigation is filed.

Contagious corporate reputation risk: Uncovering the pandemic's impact

Firms' Reputation Risk Index (RRI) co-move with their industry and local peers in the US market, suggesting that managers follow their industry and local peers to conduct ESG-related irresponsible activities. Moreover, the RRI co-movement with local peers is attenuated during the COVID-19 pandemic period, and the reduction is more significant in democratic states with stringent social distancing policies and in states with higher pandemic mortality rates. In contrast, the industry-level RRI co-movement is not significantly affected during the pandemic period. Our findings suggest that social interactions among local managers may be an essential driver for the regional RRI co-movement before the pandemic.

A world of snares: geopolitics and the global corporation

PurposeThe purpose of this study is to examine the unique confluence of forces impacting global corporations in an era of geopolitical turmoil and the resources needed to respond to them.Design/methodology/approachThis viewpoint looks at contemporary accounts of trends in natural resources, renewable energy, US–China conflict and technology innovation to assess the new risks posed to global corporations.FindingsTo manage risk in this new era of geopolitical turmoil, global corporations will need to become significantly better resources in expertise relating to technical areas such as mining, AI, trade and renewable energy.Originality/valueWhile the forces described have been discussed before, the author believes that, to the best of his knowledge, this is the first attempt to assess their impact from the perspective of corporate reputation risk.

Organising Halal Responsibility in a Company

This viewpoint paper is about how best to organise and integrate halal in a company and its operations. In many cases halal is left to the internal halal committee to organise, which is not only incorrect but also provides a major corporate reputation risk for businesses operating in or exporting to advanced Muslim markets. The halal responsibility is a foremost shared responsibility and concerns different levels of the organisation, namely: top management, risk management, marketing, operations, as well as the internal halal committee.

The Crusin Lines: Asset Impairment, Ethical Issues, and Reputation Risk

ABSTRACTA real-world incident inspired this instructional case involving a highly publicized cruise ship mishap that signaled a possible impairment loss. The case requires students to apply fair value standards relevant to nonfinancial assets and perform impairment testing using United States Generally Accepted Accounting Principles (U.S. GAAP) and/or International Financial Reporting Standards (IFRS) in the context of judgment-based estimates of future cash flows, emerging incentives, and pressures facing the divisional chief financial officer (CFO). In addition to asset impairment calculations, the complexities of this situation challenge students to evaluate ethical issues, develop alternatives, and recommend a course of action for the divisional CFO. Finally, the case requires students to explore corporate reputation risk and the accounting implications for reputation-damaging incidents. This case can fit in an international accounting, intermediate, or graduate-level financial accounting course.

Corporate reputation risk and cash holdings

AbstractWe investigate the extent to which corporate reputation risk influences cash holdings for US listed firms over the period 2007–2018. Our results show that firms having a high reputation risk hold significantly more cash. This documented relationship persists even after controlling for other determinants of cash holdings, including corporate social responsibility performance, explicitly. Using a series of analyses, we show that this relationship is not driven by endogeneity problems. Further, we find that the positive relationship between reputation risk and cash holdings is more pronounced for firms with more financing constraints and agency problems, and for growth, mature and shake‐out firms. In an additional test, we show that firms having a low reputation risk are associated with a higher marginal value of cash than are their high reputation risk counterparts. Overall, we provide robust evidence that reputation risk matters for corporate cash holdings.

The Price of Corporate Social Irresponsibility at Seasoned Equity Offerings: International Evidence

We examine the effect of corporate social responsibility engagements signaled through negative environmental and social (E&S) incidents on equity financing via seasoned equity offerings (SEOs) across 25 countries. The results show that negative E&S incidents significantly aggravate SEO underpricing, increasing cost of equity capital. We assess potential explanations from the perspective of corporate reputation risk and regulatory risk. We find support for both channels. Social reputation acts as a buffer against reputation risk arising from the E&S risk events while strong country-level E&S policies inflict regulatory risk to violating firms following E&S incidents leading to adverse E&S effects at SEOs. Further analysis reveals that the adverse pricing effects of firm E&S risk are driven by the social awareness of institutional and retail investors. We also find that the impact is negligible with the presence of larger blockholders. Managers appear to pre-empt the adverse effects by reducing the likelihood of equity financing in wake of negative incidents. Finally, there are rich cross-country variations in the pricing effects of E&S risk whereby common law countries and those with strong investor protection and individualistic but low power distance cultures suffer most from the adverse E&S incidents around SEOs.

Financial Perceptions on Oil Spill Disasters: Isolating Corporate Reputational Risk

The aim of this paper is to isolate the corporate reputational risk faced by US oil and gas companies—as listed on the New York Stock Exchange (NYSE)—after recent oil spill disasters. For this purpose, we have conducted a standard short-horizon daily event study analysis aimed at the calibration of the financial perceptions caused by these environmental episodes between 2005 and 2011, and the drop effect on the market value of the firms analyzed. We not only find significant negative impact on the stock prices of the companies analyzed but also significant cumulative negative abnormal returns (CAR) around the accidental spillages, especially for the longest event windows. Corporate reputational risk is also identified and even measured by adjusting abnormal returns by a certain loss ratio. A new metric, CAR(Rep), is then proposed to disentangle operational losses and the reputational damage derived from such negative financial perceptions.

Social media, reputation risk and ambient publicity management

PurposeThis paper aims to discuss the emergence of corporate reputational risk in terms of social media, exploring its threats to and possibilities for organizations' strategic reputation management.Design/methodology/approachReputation risk, the possibility of damaging one's reputation, presents a threat to organizations in many ways. Little is known, however, about the connections between reputation risk management and social media as a mediated business environment. Following the latest conceptualizations of strategic reputation management and social media, the paper identifies several challenges for organizations. To make sense of this issue, the paper proposes a novel context for strategic reputation management, founded on the metaphor of ambient publicity, which involves not only social media, but also organizations and their stakeholders.FindingsThe paper argues that social media expands the spectrum of reputation risks and boosts risk dynamics, and that social media can have notable effects on corporate‐level strategic endeavors, which must be considered in order to be successful in the modern business environment. Nine tenets for corporate leaders involved in strategic reputation management are presented.Originality/valueThe paper offers new insights on social media's relation to reputation risk and its management. The ambient publicity, for example, has value to leaders involved in strategic reputation management when trying to identify factors characterizing the changing business environment. Understanding ambient publicity as an environment of meaning indicates that organizations, their stakeholders, and the public create a “complex narrative web” surrounding reputation. The more unified this web is, the stronger the organization is in terms of reputation risk.