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
Poster session highlights latest evolution in GE-funded natural gas initiative 26 Jan

A group of GE executives from around the country converged on campus recently to meet with representatives from the Smeal College of Business and three other Penn State colleges as part of the continuing evolution of the Center for Collaborative Research on Intelligent Natural Gas Supply Systems (CCRINGSS).

Loss aversion drives consumers to purchase high-priced extended warranties 23 Jan

Pranav Jindal, assistant professor of marketing at the Penn State Smeal College of Business, has published a research paper that examines why consumers purchase extended warranties.

Smeal using assessment to influence student leadership training 23 Jan

With ample evidence that employers seek students with effective leadership skills, the Office of Career and Corporate Connections at the Penn State Smeal College of Business is steadily expanding the use of the Korn/Ferry ProSpective Leadership Assessment to influence programming and increase undergraduate student marketability.

Executive Insights: PwC Vice Chairman Mitch Cohen to Speak at Smeal Leadership Lecture Series 20 Jan Executive Insights: PwC Vice Chairman Mitch Cohen to Speak at Smeal Leadership Lecture Series

Mitch Cohen ’81 ACCTG, vice chairman of PricewaterhouseCoopers LLP (PwC), will share his perspectives on business, leadership, and a book he recently co-authored, with the Penn State Smeal College of Business on Friday, Feb. 13.

Smeal names Mooney director of eLDIG 09 Jan Smeal names Mooney director of eLDIG

The Penn State Smeal College of Business has named Matthew E. Mooney director of the college’s new eLearning Design and Innovation Group (eLDIG).

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