The effect of CEO reputation and explanations for poor performance on investors' judgments about the company's future performance and management

Anna Cianci, Steven Kaplan

Research output: Contribution to journalArticleResearchpeer-review

35 Citations (Scopus)

Abstract

Two experiments are conducted in which MBA students make judgments about a company s future performance and management s reputation after the company reports poor financial results. Information about the CEO s pre-existing reputation is manipulated at three levels (favorable, unfavorable, or none) and the plausibility of management s explanation is manipulated at two levels (plausible or implausible). Generally, the results indicate that management s explanations influence investors judgments of the company s future performance and that judgments about management were jointly influenced by both manipulated factors. Specifically, our results indicate that a pre-existing favorable management reputation is an enduring trait that is not damaged even when management offers an implausible explanation. Our results are consistent with Mercer (2004) but inconsistent with other research (Janoff-Bulman, 1992; Meyerson, Weick, Kramer, 1996) suggesting that a good reputation is easily lost. Our results also indicate that offering a plausible explanation improves the reputation of managers with an unfavorable reputation. We also find that judgments about management s intentions for explaining poor performance represent a partial mediator for judgments about management s reputation. Finally, we provide evidence that judgments about the company s future performance and management s reputation are consequential in that they are associated with investors equity judgments.
Original languageEnglish
Pages (from-to)478 - 495
Number of pages18
JournalAccounting, Organizations and Society
Volume35
Issue number4
DOIs
Publication statusPublished - 2010
Externally publishedYes

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