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date: 14 June 2021

Abstract and Keywords

This article tries to answer a fundamental question about the importance of reputation–does it actually work to discipline firm misconduct?– and also addresses the empirical research on the significance of reputational penalties for corporate misconduct. The reputational loss occurs because of direct impairments to the firm's ongoing operations, and also because counterparties alter the terms with which they are willing to continue to do business with the firm. The article then illustrates that firms engaging in many types of misconduct incur large reputational losses. In general, the data indicates that firms experience significant reputational losses when their misconduct imposes costs on their counterparties. Reputation plays a small role in disciplining environmental violations, and regulations and legal penalties play a more important role. Furthermore, there are large consequences for firms and managers that are caught engaging in misconduct.

Keywords: reputation, firm misconduct, corporate misconduct, reputational penalties, reputational losses, regulations, legal penalties

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