Academy of Management 2014: Research into conformity, deviance and reputation

by Don Lange

When building a reputation, and quite apart from one’s actual level of quality, is it better to strive for conformity with one’s peers, or alternatively to break away from the pack? At the Academy of Management annual meetings in Philadelphia, Eugene Paik (doctoral student at the University of Arizona) presented research exploring exactly that question. Eugene, Steve Boivie (Texas A&M), Peggy Lee (my colleague at Arizona State) and I are coauthoring that study. The empirical setting is attainment of “All-Star” status (awarded by Institutional Investor magazine) among stock analysts.

Researchers in the organizational literature have paid a lot of attention to how the acts of deviating from or conforming to the crowd can affect legitimacy—meaning whether an actor is evaluated as appropriate and understandable. We build on arguments by David Deephouse and others about how deviation and conformity will also influence an actor’s reputation—meaning the degree to which the actor is noticed and considered to be of high quality.

In our study, we model conformity and deviance in terms of the degree to which the analyst takes risks in his/her earnings forecasts by deviating more or less from the consensus estimate (composed of the estimates made by all the other analysts following the same company). We follow prior research on analysts by referring to deviation from the consensus as “boldness.”

We argue that when there are many actors striving to stand out and build a reputation for unique ability, it can be a rational and effective strategy to be bold. We found that, controlling for forecast accuracy, the analysts who did not follow the crowd, and who took risks in their forecasts, were more likely to be recognized as All-Stars.

We also predicted and found that there is a kind of halo effect after an analyst receives All-Star status. Irrespective of actual performance and irrespective of boldness, prior All-Stars are more likely than other analysts to be deemed All-Stars in the following year. This finding is consistent with prior research that has talked about how reputation exhibits some inertia.

Finally, we wondered what strategies All-Stars might adopt to preserve their reputations. Would they retreat to a safer strategy, confident enough in their recertification chances that they would become more conformist in their forecasting? We did not find evidence of that. Instead, we found that prior All-Stars tended to become even bolder forecasters in the subsequent year. Again, this effect was evident even after we controlled for the accuracy of the forecasts.

Our work on examining how deviance and conformity can be both antecedents and effects of reputation continues. We’d love to hear from you if you have ideas or questions.