The reputation costs of executive misconduct accusations

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We examine how sexual harassment accusations against individual executives affect the stock returns of the affiliated organization. Taking an upper echelons and abuse of power perspective, we identify 372 high-profile sexual harassment accusations, of which 98 are relevant to this study. We employ event study methodology to detect abnormal stock reactions for the affiliated organization. As predicted, the results indicate that #MeToo accusations substantially harmed the stock returns of the organization despite the accusation relating to the misconduct of only a single executive. Surprisingly, we discover significant results only for executives at the parent organization. For this research, we first provide evidence that individual misconduct matters for organizations. Second, we enrich the upper echelons research by focusing on accusations of executive misconduct and examining how unethical values, abuse of power, and sexual harassment shape the organizational outcomes. We demonstrate that executive misconduct becomes particularly relevant when the executive holds significant managerial power, as indicated by employment at the parent organization. For practice, our findings provide two contributions that can help organizations prevent occurrences of sexual misconduct. First, we propose that organizations should screen executives more carefully for past incidents of misconduct before hiring them. Second, we suggest that organizations should have clear and deterrent anti-sexual harassment policies in place and rigorously align them with their internal control systems to ensure adherence to these policies. Finally, the establishment of a climate of permanent “nudges” should increase the awareness of the risk of sexual harassment.
Original languageEnglish
Article number10034
JournalAcademy of Management Proceedings
Issue number1
Number of pages3
Publication statusPublished - 01.08.2021
Event81st Annual Meeting of the Academy of Management: Bringing the Manager back in Management 2021 -
Duration: 29.07.202104.08.2021
Conference number: 81