Reputational Penalties

A reputational penalty refers first to damage sustained by a firm’s reputation as a result of firm actions that observers evaluate as negative or “bad” (e.g., selfish, opportunistic, illegitimate, unethical, or illegal actions, or subpar performance). While corporate reputation is generally thought of as a perceptual evaluation of the firm, a second view of reputational penalties sees them as tangible, undesirable consequences that follow negative behavior, which are attributable to reputational damage. For example, misbehavior may lead a firm to suffer reduced sales, stock price declines, reduced access to exchange partners, less advantageous terms of trade, or revocation of licenses, certifications, or contracts. This entry discusses reputation as a form of social control, the consequences of negative corporate behaviors, strong and weak reputational penalties, and ...