Week 1 - Organizations & Corporate Reputation
Voluntary disclosure & Organizational transparency → Transparency → Trust → Reputation
→ Legitimacy and Crisis Resilience
Organizations: A group of people who work together in an organized way for a shared purpose.
Corporate Reputation and Media Influence
→ Showed how media visibility and tone drive corporate reputation formation.
What is ‘corporate reputation’?
→ Public evaluation of a company’s trustworthiness and credibility held by its stakeholders.
Why important → Shapes stakeholder trust, consumer choice, crisis resilience → valuable assets
Media as driver → Stakeholders rely on media to judge firms.
⇒ Trust ⇒ Reputation!!
Agenda-Setting Theory: 1st Level: visibility - which firms appear. 2nd level = tone – how they’re
described.
Media visibility → Frequency of news mentions about a company.
⇒ ↑ Visibility → ↓ reputation due to negativity bias.
Tone of coverage→ Favorability of news (positive vs negative).
⇒ ↑ Positive tone → better reputation; ↑ Negative tone → 3x damage (loss aversion).
Pre-existing reputation: Cognitive dissonance theory: people resist revising favorable attitudes.
⇒ A strong prior reputation buffers the effect of negative news → crisis insurance
Measuring Media Reputation
Media Reputation: → The valence (tone) and visibility of how a firm is portrayed in the news.
Reputation advantages : Magnet for talent, credit, and crisis buffer.
Reputation disadvantages : Subjective, hard to earn, easily lost.
Five Measures of Media Reputation
● Kiousis: positive
● Frombrun-shanley: positive + natural
● Wry: positive + negative (linear)
● Deephouse Endorsement: positive + negative (non-linear)
● Deephouse Favorability: positive + natural + negative (non-linear)
Key Similarities & Differences of these Measures:
Similarities Differences
All quantify media portrayal & tone. Some exclude negatives vs others include
Count news items (visibility + tone) Linear vs non-linear weighting
, Only fombrun-shanley & deephouse favorability Fombrun-shanley produce most positives;
have neutral deephouse yields most negatives
All recognise tone importance
Finding:
● The five measures produced significantly different scores → not interchangeable!
● National media are more critical → lower scores; local media more positive.
● News coverage emphasizes financial and product performance over citizenship or
workplace issues.
Implication:
● Scholars & practitioners must select the index that fits their purpose.
● For managers → tone analysis is crucial; ignoring negatives inflates perceived reputation.
Voluntary Disclosure
→Voluntary disclosure is a dual mechanism—legitimacy (stakeholder theory) + credibility (agency
theory).
Voluntary Disclosure → Perceived quality of intentionally shared information from a sender to
stakeholders.
● Corporate scandals + global 24/7 media + stakeholder pressure → transparency new norm
● Disclosing strategy helps with → Align internal stakeholders, build external legitimacy, and
signal direction to markets and society.
Determinants of Voluntary Disclosure
● Regulation & governance codes
● Stakeholder pressure
● Agency problems
● Firm characteristics
● Strategic leadership
Theoretical lenses:
Theory Core Idea Focus Disclosure Purpose
Stakeholder Theory Firms depend on stakeholder support. Gain legitimacy and To show transparency
acceptance from and responsibility —
(Society at large) society. so people trust them
more and see them as
⇒ Legitimacy legitimate.
Agency Theory There’s a “principal–agent” relationship Voluntary disclosure
inside companies — shareholders Fixing the helps with:
(Shareholders) (principals) own the company, but - Reduces suspicion
, managers (agents) run it. information and misinformation
⇒ Credibility Problem: Managers might act in their gap/asymmetry and - Prevents bad
own interest, not always in building credibility. decisions or “adverse
shareholders’ interest (this is called selection”
information asymmetry — one side - Shows managers are
knows more than the other). trustworthy and
aligned with owners’
goals
Integrated View Combines both theoretical perspectives. Balancing Firms disclose
legitimacy (societal sustainability info to
approval) and please society and
credibility (financial detailed financials to
trust). satisfy markets.
→ Transparency therefore functions as both a governance mechanism (agency theory) - reduces
information asymmetry - and a legitimacy mechanism (stakeholder theory) - meets social
expectations.
Outcomes of Voluntary Disclosure
Benefits Risks
Better reputation & legitimacy Competitors gain info
Enhance stakeholder trust Require resources
Reduces info asymmetry Creates strategic rigidity (“locked-in” to plans)
Improved internal alignment
Higher liquidity
⇒ Voluntary disclosure ⇒ Transparency!
Main Conclusion: Transparency builds both trust and legitimacy but risks strategic rigidity.
Organizational Transparency
→ Perceived quality of intentionally shared information from a sender to stakeholders.
Three primary dimensions of transparency
1. Disclosure = how much and how openly a company shares information.
○ Relevance + timeliness (not data dumps).
2. Clarity = perceived comprehensibility of information.
○ Plain language, audience fit, reduced jargon/ambiguity.
3. Accuracy = perceived reliability/correctness of information (appropriately qualified).
○ Verifiability, precision, honest qualification of uncertainty.
⇒ Even accurate data ≠ “transparent” if it’s unclear or irrelevant.
Trustworthiness Model (Mayer et al., 1995):
Explains why three dimensions of transparency builds trust in an organization.
Voluntary disclosure & Organizational transparency → Transparency → Trust → Reputation
→ Legitimacy and Crisis Resilience
Organizations: A group of people who work together in an organized way for a shared purpose.
Corporate Reputation and Media Influence
→ Showed how media visibility and tone drive corporate reputation formation.
What is ‘corporate reputation’?
→ Public evaluation of a company’s trustworthiness and credibility held by its stakeholders.
Why important → Shapes stakeholder trust, consumer choice, crisis resilience → valuable assets
Media as driver → Stakeholders rely on media to judge firms.
⇒ Trust ⇒ Reputation!!
Agenda-Setting Theory: 1st Level: visibility - which firms appear. 2nd level = tone – how they’re
described.
Media visibility → Frequency of news mentions about a company.
⇒ ↑ Visibility → ↓ reputation due to negativity bias.
Tone of coverage→ Favorability of news (positive vs negative).
⇒ ↑ Positive tone → better reputation; ↑ Negative tone → 3x damage (loss aversion).
Pre-existing reputation: Cognitive dissonance theory: people resist revising favorable attitudes.
⇒ A strong prior reputation buffers the effect of negative news → crisis insurance
Measuring Media Reputation
Media Reputation: → The valence (tone) and visibility of how a firm is portrayed in the news.
Reputation advantages : Magnet for talent, credit, and crisis buffer.
Reputation disadvantages : Subjective, hard to earn, easily lost.
Five Measures of Media Reputation
● Kiousis: positive
● Frombrun-shanley: positive + natural
● Wry: positive + negative (linear)
● Deephouse Endorsement: positive + negative (non-linear)
● Deephouse Favorability: positive + natural + negative (non-linear)
Key Similarities & Differences of these Measures:
Similarities Differences
All quantify media portrayal & tone. Some exclude negatives vs others include
Count news items (visibility + tone) Linear vs non-linear weighting
, Only fombrun-shanley & deephouse favorability Fombrun-shanley produce most positives;
have neutral deephouse yields most negatives
All recognise tone importance
Finding:
● The five measures produced significantly different scores → not interchangeable!
● National media are more critical → lower scores; local media more positive.
● News coverage emphasizes financial and product performance over citizenship or
workplace issues.
Implication:
● Scholars & practitioners must select the index that fits their purpose.
● For managers → tone analysis is crucial; ignoring negatives inflates perceived reputation.
Voluntary Disclosure
→Voluntary disclosure is a dual mechanism—legitimacy (stakeholder theory) + credibility (agency
theory).
Voluntary Disclosure → Perceived quality of intentionally shared information from a sender to
stakeholders.
● Corporate scandals + global 24/7 media + stakeholder pressure → transparency new norm
● Disclosing strategy helps with → Align internal stakeholders, build external legitimacy, and
signal direction to markets and society.
Determinants of Voluntary Disclosure
● Regulation & governance codes
● Stakeholder pressure
● Agency problems
● Firm characteristics
● Strategic leadership
Theoretical lenses:
Theory Core Idea Focus Disclosure Purpose
Stakeholder Theory Firms depend on stakeholder support. Gain legitimacy and To show transparency
acceptance from and responsibility —
(Society at large) society. so people trust them
more and see them as
⇒ Legitimacy legitimate.
Agency Theory There’s a “principal–agent” relationship Voluntary disclosure
inside companies — shareholders Fixing the helps with:
(Shareholders) (principals) own the company, but - Reduces suspicion
, managers (agents) run it. information and misinformation
⇒ Credibility Problem: Managers might act in their gap/asymmetry and - Prevents bad
own interest, not always in building credibility. decisions or “adverse
shareholders’ interest (this is called selection”
information asymmetry — one side - Shows managers are
knows more than the other). trustworthy and
aligned with owners’
goals
Integrated View Combines both theoretical perspectives. Balancing Firms disclose
legitimacy (societal sustainability info to
approval) and please society and
credibility (financial detailed financials to
trust). satisfy markets.
→ Transparency therefore functions as both a governance mechanism (agency theory) - reduces
information asymmetry - and a legitimacy mechanism (stakeholder theory) - meets social
expectations.
Outcomes of Voluntary Disclosure
Benefits Risks
Better reputation & legitimacy Competitors gain info
Enhance stakeholder trust Require resources
Reduces info asymmetry Creates strategic rigidity (“locked-in” to plans)
Improved internal alignment
Higher liquidity
⇒ Voluntary disclosure ⇒ Transparency!
Main Conclusion: Transparency builds both trust and legitimacy but risks strategic rigidity.
Organizational Transparency
→ Perceived quality of intentionally shared information from a sender to stakeholders.
Three primary dimensions of transparency
1. Disclosure = how much and how openly a company shares information.
○ Relevance + timeliness (not data dumps).
2. Clarity = perceived comprehensibility of information.
○ Plain language, audience fit, reduced jargon/ambiguity.
3. Accuracy = perceived reliability/correctness of information (appropriately qualified).
○ Verifiability, precision, honest qualification of uncertainty.
⇒ Even accurate data ≠ “transparent” if it’s unclear or irrelevant.
Trustworthiness Model (Mayer et al., 1995):
Explains why three dimensions of transparency builds trust in an organization.
