The disparate economic outcomes of stigma: Evidence from the arms industry

Research SummaryOrganizational stigma has been commonly associated with a number of negative economic externalities in prior literature, but the mechanism by which this occurs and the extent of the associated consequences have received little attention. We address these gaps by theorizing that stigm...

Full description

Saved in:
Bibliographic Details
Published in:Strategic management journal 2023-10, Vol.44 (10), p.2489-2533
Main Authors: Sadri, Mohamad, Piazza, Alessandro, Phung, Kam, Helms, Wesley
Format: Article
Language:English
Subjects:
Authority
Behavior
Civil society
Corporate culture
Defense industry
Economic impact
Ethics
Financial performance
Legitimacy
Rates of return
Securities markets
Stakeholders
Stigma
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:Research SummaryOrganizational stigma has been commonly associated with a number of negative economic externalities in prior literature, but the mechanism by which this occurs and the extent of the associated consequences have received little attention. We address these gaps by theorizing that stigmatizing labels damage the legitimacy of the target by highlighting a deviation from the expectations of relevant audiences. We also argue that the content and focus of stigmatizing labels, as well as the features of the stigmatizer audience deploying them, will affect the magnitude of the negative economic consequences of stigma. Through an analysis linking the condemnation of arms producers in the media between 1998 and 2016 to cumulative abnormal returns (CAR) in the stock market, we find broad support for our arguments.Managerial SummaryThis paper examines the economic impact of stakeholder criticism on firms, using data from the global arms industry to develop a typology of criticism based on its content, focus, and origin. We find that criticism can negatively affect a firm's stock market returns, particularly when those criticizing have the authority to condemn specific behaviors. Civil society entities like nonprofits or the media, politicians, and economic players such as investors each have unique authority to criticize harmful behavior, illegal behavior, and unethical affiliations, respectively. Understanding the different types of criticism and their potential economic consequences can help firms better manage stakeholder relationships and mitigate negative impacts on their financial performance.
ISSN:0143-2095
1097-0266
DOI:10.1002/smj.3503