{"title":"The Cost of Wrongdoing to Bystander Firms","authors":"Min-Jung Lee, Mina Lee, Seunghyup Lee","doi":"10.1017/bap.2023.8","DOIUrl":null,"url":null,"abstract":"\n We argue that a taken-for-granted category gives way to a new category when strategic behavior becomes stigmatized. As a result, even bystander firms that have engaged in similar strategic behavior, such as lobbying, will be penalized by their association with the culpable strategic behavior. The extent of their association with the culpable behavior will determine the level of punishment they receive. However, if a trustworthy third party administers a corrective measure, the affected firms can regain their lost legitimacy. The extent of their restoration is proportional to the amount of legitimacy that was lost. We provide empirical evidence for this argument by analyzing the Jack Abramoff case, one of the most notorious corrupt lobbying cases in US history. We find that bystander firms were penalized by shareholders when the corrupt lobbying was revealed. Furthermore, the penalty was more severe for bystander firms that engaged in more lobbying activities and hired more revolving-door lobbyists. We also find that the subsequent legal remedy helped the bystander firms that were penalized the most to recover the most from their losses. We confirm the theoretical notion using the Enron case as well.","PeriodicalId":39749,"journal":{"name":"Business and Politics","volume":"27 1","pages":""},"PeriodicalIF":1.4000,"publicationDate":"2023-05-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Business and Politics","FirstCategoryId":"90","ListUrlMain":"https://doi.org/10.1017/bap.2023.8","RegionNum":3,"RegionCategory":"社会学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q2","JCRName":"INTERNATIONAL RELATIONS","Score":null,"Total":0}
引用次数: 0
Abstract
We argue that a taken-for-granted category gives way to a new category when strategic behavior becomes stigmatized. As a result, even bystander firms that have engaged in similar strategic behavior, such as lobbying, will be penalized by their association with the culpable strategic behavior. The extent of their association with the culpable behavior will determine the level of punishment they receive. However, if a trustworthy third party administers a corrective measure, the affected firms can regain their lost legitimacy. The extent of their restoration is proportional to the amount of legitimacy that was lost. We provide empirical evidence for this argument by analyzing the Jack Abramoff case, one of the most notorious corrupt lobbying cases in US history. We find that bystander firms were penalized by shareholders when the corrupt lobbying was revealed. Furthermore, the penalty was more severe for bystander firms that engaged in more lobbying activities and hired more revolving-door lobbyists. We also find that the subsequent legal remedy helped the bystander firms that were penalized the most to recover the most from their losses. We confirm the theoretical notion using the Enron case as well.
期刊介绍:
Business and Politics solicits articles within the broad area of the interaction between firms and political actors. Two specific areas are of particular interest to the journal. The first concerns the use of non-market corporate strategy. These efforts include internal organizational design decisions as well as external strategies. Internal organizational design refers to management structure, sourcing decisions, and transnational organization with respect to the firm"s non-market environment. External strategies include legal tactics, testimony, lobbying and other means to influence policy makers at all levels of government and international institutions as an adjunct to market strategies of the firm.