How Do Environmental Violation Events Harm Corporate Reputation?

Abstract

This study, based on attribution theory, provides empirical evidence for how environmental violation events (EVEs) damage corporate reputation, using media reputation as a proxy. Hypotheses are developed to address the influences of violating firms' past environmental behaviors and ownership on the reputational effect of EVEs. The results show that firms with a history of unfavorable behaviors (precedent environmental violation) are deemed by the media to be more culpable for adverse environmental events and consequently suffer more damage to their reputation, while for firms with a favorable environmental record (environmental awards and honors gained) the reputational harm of an EVE is alleviated to some extent. EVEs cause more reputational damage to foreign-owned enterprises than to domestic-owned firms. These findings reveal that certain company behaviors could exert an indirect effect on a firm's reputation by influencing public perception of later relevant behaviors, and imply a discriminatory treatment in a host country for foreign-owned enterprises.

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