Reputation as insurance: how reputation moderates public backlash following a company's decision to profiteer

TL;DR

This study shows that a strong corporate reputation can serve as a form of insurance, reducing negative public fairness judgments when a company profits from increased demand, while a bad reputation amplifies perceived unfairness.

Contribution

It provides experimental evidence that corporate reputation causally influences public fairness judgments regarding profiteering decisions.

Findings

Good reputation buffers negative fairness judgments.

Bad reputation increases perceived unfairness.

Reputation impacts public perception of economic decisions.

Abstract

We examine whether a company's corporate reputation gained from their CSR activities and a company leader's reputation, one that is unrelated to his or her business acumen, can impact economic action fairness appraisals. We provide experimental evidence that good corporate reputation causally buffers individuals' negative fairness judgment following the firm's decision to profiteer from an increase in the demand. Bad corporate reputation does not make the decision to profiteer as any less acceptable. However, there is evidence that individuals judge as more unfair an ill-reputed firm's decision to raise their product's price to protect against losses. Thus, our results highlight the importance of a good reputation in protecting a firm against severe negative judgments from making an economic decision that the public deems unfair.