How do firms' actions influence corporate reputation? The case of downsizing at large U.S. firms

Scholars have been quite interested in antecedents of corporate reputation, particularly given increasing evidence of the consequentiality of such reputations. Researchers have argued that audiences bestow such reputation when they perceive that firms have delivered on their commitments, are trustworthy and credible, exhibit high performance, and have acted in normatively or culturally valued ways, among other things. One important question asks how specific corporate actions dynamically affect such reputation. While reputation scholars stress that actions are central in how audiences develop the above perceptions and thus why they bestow reputation, relatively few studies have directly examined this relationship and understandings of this relationship are limited. Thus, we examine how large American corporations' rankings in the annual Fortune Magazine Most Admired Companies survey were affected by their use of the controversial practice of downsizing across the period from 1985 to 1994. We develop and test theoretically-grounded hypotheses about this empirical relationship, drawing on reputational and institutional research. Findings show that engaging in downsizing strongly affected firms' rankings in the Fortune survey. They also provide strong support for most of our hypotheses, revealing a number of important complexities and contingencies in the relationship between firm actions and changes in corporate reputations. We discuss our study's implications for research on reputation as well as for institutional theory.