Misconduct and the media: Organizational sensegiving, media coverage, and investor reaction in the aftermath of wrongdoing

Abstract

Scholars are increasingly exploring organizational misconduct and have sought to explain when and why consequences following the revelation of wrongdoing are disparate between firms. While some explore firm characteristics that might explain differences in firm outcomes following misconduct, a more recent line of inquiry asks how firms can actively manage their consequences in the aftermath of wrongdoing. Drawing from the sensemaking and sensegiving literatures, this study explores a model of organizational misconduct that describes how media response (and ultimately shareholder reaction) is a function of what the firm says (i.e., explanatory framing), what it does (i.e., corrective action), and who it is (i.e., firm status). I test my ideas on a sample of firms that announced a material financial restatement between 1997 and 2012 utilizing archival data and content analysis techniques. Results provide some evidence that firms can influence external constituents’ reactions to their misconduct through explanatory framing and corrective action. Interestingly, however, I find that unique external observers (i.e., the media and investors) respond differently to firms’ sensegiving efforts. Additionally, results suggest that media tenor and media attention, together, can influence investor reaction. I discuss the complete results of this study and their implications for development of the misconduct and sensemaking literatures as well as research on restoring relationships with external constituents following misconduct.