Heuristic decision making, organizational reputation, and stakeholder perceptions of reports implicating firms in transgressions

In the strategic management literature, firm reputation has come to be considered one of the most valuable intangible assets that a firm has in its resource base. Given that reputation is strategically most important in interactions among economic actor characterized by incomplete information; will firm reputation offer the firm protections against casually ambiguous, firm-implicating negative reports? In answering this question, we approach firm reputation from both the intangible firm resource and sociocognitive construct views thus drawing on a broad and often disconnected theoretical base including: attribution theory, behavioral decision theory, prospect theory and the resource based view. Employing a novel experimental design, we offer several insights into how consumers make social judgments about firms and contribute to a greater understanding of the firm-stakeholder dynamics that underpin organizational reputation. Specifically we find that: 1) reputation is a relevant heuristic cue for judgments of an entity's trustworthiness; 2) consumers attribute the association of a negative event and a company as if they are causally related; 3) alleged integrity violations are more damaging than alleged competence violations; 4) damage repair attempts involving amplification of prior reputation cues are only marginally effective; and 5) while reputation was observed to operate as a valuable resource yielding price premiums and increased loyalty when fully intact, its effectiveness in the context of allegations of transgression is in establishing a higher starting point for the firm prior to a negative report but does not insulate the firm from losses.