Virtue Rhetoric in Investor Communications: Setting Up for a Letdown?

Abstract

Many companies prominently espouse their virtuous character in communications with investors, with a view toward influencing investor perceptions about the firm’s standards of behavior. While there are benefits to investors perceiving an organization to be virtuous, what happens if the firm violates those standards by engaging in unethical behavior? In this study, we use expectancy violations theory to argue that virtue rhetoric sets investors up for disappointment. When an organization claims to be virtuous but then acts unethically, investors respond to the ethics violation more negatively than they would otherwise. We also theorize about scenarios where investors may overlook unethical behavior or intensify their disapproval of it. To test our ideas, we assemble a unique sample of unethical events committed by S&P 500 companies over a 12-year period, combined with analysis of the virtue rhetoric found in their annual letters to shareholders. Our main finding is that investor reaction to unethical behavior is more negative for companies that claimed to be virtuous prior to the violation than for those that did not make such claims. This relationship is less strong when the company has high expected future value.

Rhetoric, Risk, and Investment: Letting the Numbers Speak for Themselves

“…Nonetheless, the CATA technique used in this study has been acknowledged as a useful tool for scholars because of its ability to process large amounts of textual data at high speeds and reliability (Short et al, 2010;Short and Palmer 2008) as well as construct validity (McLeod et al, 2016). For example, past research has validated the value of content analysis by examining IPO prospectuses (e.g., McLeod et al, 2018;Payne et al, 2013) and other organizational narratives (e.g., McLeod et al, 2016;Zachary et al, 2021). Moreover, we qualitatively conducted latent content analysis of the IPO prospectus sample to provide additional validity to our logos, pathos, and ethos dictionaries.…”

“…Another example could include ethos rhetoric and organizational virtue orientation (e.g., Evert et al, 2018; McLeod et al, 2018; Zachary et al, 2021). While there are some similarities, such as virtue, ethics, and general social good, ethos encompasses much more than just an entity’s general morality.…”

Responding to a societal crisis: How does corporate social responsibility engagement influence corporate reputation?

“…This deviation from expected behavior is then judged positively or negatively based on the receiver’s interpretation and the appeal of the behavior ( Burgoon and Walther, 1990 ). Expectancy violations theory has thus been recently utilized to better understand several management phenomena, including firm impression management (e.g., Graffin et al, 2016 ; Jin et al, 2021 ), communication with investors (e.g., Zachary et al, 2021 ), and corporate or organizational irresponsibility effects (e.g., Nardella et al, 2020 ).…”

“…Given that enhancing a firm’s corporate reputation, which is commonly defined as the overall assessment of a firm as “good” or “bad” ( Dowling and Moran, 2012 ; Lin-Hi and Blumberg, 2018 ; Roberts and Dowling, 2002 ), is often cited as one of the primary goals of a firm’s engagement in CSR ( Axjonow et al, 2018 ; KPMG International, 2011 ), firms are likely motivated to engage in CSR during a societal crisis. While prior management literature provides evidence that firms who violate their own high standards experience a greater penalty (e.g., Rhee and Haunschild, 2006 ; Zachary et al, 2021 ), considering the impact of a firm’s CSR engagement during societal crises on its corporate reputation is especially relevant in light of the “increased demand for CSR activities in response to the [COIVD-19] pandemic” ( Manuel and Herron, 2020 : 236). As such, this paper considers the reputation consequences of firms’ changing CSR engagement levels in response to a societal crisis as well as firms’ speed in responding to a societal crisis.…”

Does Greenwashing Affect Employee’s Career Satisfaction? The Mediating Role of Organizational Pride, Negative Emotions and Affective Commitment.

“…Companies are expected to engage in honest, responsible, and ethical behavior (Lin-Hi & Blumberg, 2018;Park et al, 2021), as they have the moral responsibility of conducting CSR activities and doing what is right (Ha-Brookshire, 2017). If the company is perceived as being dishonest (Parguel et al, 2011), stakeholders may respond to ethics violation negatively (Zachary et al, 2021). Considering that companies are appraised in terms of character and morality (Bauman & Skitka, 2012), and morality and emotions are connected (Cameron et al, 2015), this article assumes that there is incongruence/mismatch, between the company's irresponsible behavior and the moral grounds of employees.…”