Publication Type
Journal Article
Version
acceptedVersion
Publication Date
4-2019
Abstract
We develop and test a model that extends the understanding of how people react to news of organizational unethical behavior and how such reactions impact stock performance. We do so by taking into account the interplay between the features of specific unethical acts and the features of the organizational context within which unethical acts occur. We propose a two-stage model in which the first stage predicts that unethical acts that benefit the organization are judged less harshly than are unethical acts that benefit the actor, when the organization is seen as pursuing a moral goal (e.g., producing inexpensive medicine rather than tobacco products). In such cases, the motives behind the unethical act are construed as an individual’s intentions to pursue a moral end. The second stage of our model connects moral judgment to action against the organization as a whole. We propose that moral judgments of an unethical act are more likely to translate into negative economic consequences for the organization when the unethical act is seen as benefiting the organization, because in such cases the organization is construed as an accomplice. Study 1 is an event study of stock market reactions to organizational unethical behavior in which the features of organizational unethical behavior were operationalized by coding media coverage of unethical acts. Study 2 is an experiment that used news stories to manipulate features of unethical behavior and measured participants’ estimates of stock performance, while incentivizing participants for accuracy. Both studies found support for our model.
Keywords
unethical behavior, moral judgments, stock performance
Discipline
Finance and Financial Management | Organizational Behavior and Theory | Organization Development
Research Areas
Organisational Behaviour and Human Resources
Publication
Organization Science
Volume
30
Issue
2
First Page
319
Last Page
336
ISSN
1047-7039
Identifier
10.1287/orsc.2018.1244
Publisher
INFORMS (Institute for Operations Research and Management Sciences)
Citation
BAKER, Bradford E.; DERFLER-ROZIN, Rellie; PITESA, Marko; and JOHNSON, Micheal D..
Stock market responses to unethical behavior in organizations: An organizational context model. (2019). Organization Science. 30, (2), 319-336.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/6213
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1287/orsc.2018.1244
Included in
Finance and Financial Management Commons, Organizational Behavior and Theory Commons, Organization Development Commons