Academy of Management 2014: Research into multiple reputations and reputational domain overlap

by Scott Graffin

Research suggests that an actor’s reputation influences numerous outcomes including an organization’s performance (e.g., Deephouse, 2000; Rindova, Williamson, Petkova, & Sever, 2005) and executive compensation (e.g., Milbourn, 2003; Wade, Porac, Pollock, & Graffin, 2006).  This research, however, tends to focus on the reputation of one focal actor and how that reputation affects outcomes important to this actor.  While this single actor-centric approach has helped us begin to build an understanding of the effects of reputation across a wide variety of settings and outcomes, it does not consider the fact that in many settings there are multiple reputations that may affect a given outcome.  This is especially true in situations when the reputational domains overlap and both are relevant to a particular outcome. Despite the intuitive nature of this idea, academic research has largely ignored how reputations of multiple actors may impact a given outcome.  

To begin to address the puzzle of how the reputations of multiple actors may jointly influence a given outcome, we focus on a context where reputations are particularly relevant – the effects of analyst reputation and CEO reputation on how changes in analyst recommendations (e.g. buy, sell, hold) influence the associated stock price reaction. Prior research suggests that analysts (Groysberg & Lee, 2010; Groysberg, Nanda, & Nohria, 2004) and CEOs (e.g., Graffin et al., 2008; Wade et al., 2006) may achieve favorable reputations because of third party assessments of their ability to perform their jobs in a highly capable manner.

Specifically, in this study we ask the question: How do the reputations of star analysts and star CEOs individually and jointly affect firm outcomes? To answer this question we focus on a context where reputations are particularly relevant – changes in analyst recommendations and the effect of those changes on stock market reactions. Our study makes contributions to the growing reputation literature by being one of the first studies to recognize and measure how the market accounts for multiple reputations within a given context. Furthermore, we argue and find that the reputations of different actors interact with each other when determining particular firm outcomes. We find that different reputational domains influence the reactions of observers. Finally, we demonstrate that prior reputational research may have misstated the effects of reputation by failing to consider how other forms of related reputation may jointly affect outcomes.