You are here: Home / News Release Archives / 2014 / June / When Firm Behaves Badly, Whole Industry May Suffer, Says Research

When Firm Behaves Badly, Whole Industry May Suffer, Says Research

The announcement of a firm’s misconduct can have a negative effect on the value of other public firms in the same industry due to decreased investor confidence, according to recent research from Penn State Smeal College of Business faculty members Srikanth Paruchuri and Vilmos Misangyi.
June 4, 2014

The announcement of a firm’s misconduct can have a negative effect on the value of other public firms in the same industry due to decreased investor confidence, according to recent research from Penn State Smeal College of Business faculty members Srikanth Paruchuri and Vilmos Misangyi.

In a recent study appearing in the Academy of Management Journal, Paruchuri and Misangyi —both associate professors of management and organization—investigated the contaminating effects of one firm’s misconduct on “bystander firms,” or firms in the same industry that have not been accused of wrongdoing.

“[W]hen one firm reveals financial misconduct, a generalization of culpability ensues such that investors worry that all firms in the same industry category as the misconduct firm are also likely to have engaged in similar misconduct.”

“[W]hen one firm reveals financial misconduct, a generalization of culpability ensues such that investors worry that all firms in the same industry category as the misconduct firm are also likely to have engaged in similar misconduct,” write the researchers.

Further, Paruchuri and Misangyi find that more familiar firms generate a stronger association with bystander firms among investors’ perceptions. In other words, bystander firms are more negatively valued based on another firm’s misconduct if the offending firm is larger, and therefore more familiar to the investor.

“[I]n the context of investor perceptions of financial misconduct, investors will see those perpetrator firms with which they are familiar as being representative of the industry as a whole, and this familiarity therefore makes the culpability of the perpetrator more potent for generalization,” they write.

The study, “Investor Perceptions of Financial Misconduct: The Heterogenous Contamination of Bystander Firms” is forthcoming in the Academy of Management Journal. Paruchuri is an associate professor of management and holds a Ph.D. in business administration from Columbia University. Misangyi is an associate professor of management and organization and holds a Ph.D. in strategic management from the University of Florida.

Recent News
EY CEO and Global Chairman Emphasizes Risk-Taking, Optimism in Building Career Success 23 Sep

EY’s global chairman and CEO, Mark Weinberger, spoke to a full audience at the Penn State Smeal College of Business today, as part of the college’s Executive Insights series.

PNC Bank Internship Provides Finance Student Experience in Banking Industry 23 Sep

Elizabeth Bravacos, a senior Finance major in the Penn State Smeal College of Business, spent her summer as an intern in the Finance and Accounting Internship Program at PNC Bank in Pittsburgh.

Smeal Again Ranks No. 1 for Graduate Supply Chain Education 19 Sep

The Penn State Smeal College of Business once again ranks No. 1 in graduate supply chain education according to a report from IT research and advisory firm Gartner, which also ranked the college best for undergraduate supply chain education in August.

Ding Co-Authors Book on Modern China 18 Sep

The Chinese Way, a newly released book from Penn State Smeal College of Business Professor of Marketing and Innovation Min Ding and Jie Xu of Fudan University, explores modern-day Chinese culture from multiple angles, providing a deeper understanding of a complex society that is critically important to business in a globalized world.

Client Projects Sought for Penn State Smeal MBA Program's Applied Professional Experience 17 Sep

The Penn State Smeal College of Business is currently seeking projects for the spring 2015 Applied Professional Experience (APEX) Program. APEX, the capstone component of Smeal’s internationally ranked MBA program, runs from early January through April and consists of student teams collaborating with client firms to take on real-world business challenges.

More Recent News... More Recent News...