Why “Good” Firms do Bad Things
Publication Year
2010
Abstract
Recent high-profile corporate scandals involving prominent, high-performing firms cast doubt on assertions that the costs of getting caught decrease the likelihood such high performers will act illegally. We explain this paradox by using theories of loss aversion and hubris to examine a sample of S&P 500 manufacturers. Results demonstrate that both performance above internal aspirations and performance above external expectations increase the likelihood of illegal activities. The sample firms' prominence enhanced the effects of performance above expectations on the likelihood of illegal actions. Prominent and less prominent firms displayed different patterns of behavior when their performance failed to meet aspirations.
"Too good to be true? The role of attainment discrepancy, external expectations, and the moderating effects of reputation on the incidence of corporate illegality" (with Yuri Mishina, Johnson-Dykes Bernadine, and Timothy Pollack), Academy of Management Journal 53, 4 (2010)