How firm reputation shapes managerial discretion

Abstract

Reputation is not always a “good thing.” Despite the established benefits of a good reputation, recent research has elucidated the burdens and liabilities it can bring about, particularly following a crisis or stakeholder disappointment. However, managers spend much of their time avoiding such extreme events rather than responding to them, and we know very little about how reputation influences managers’ everyday decisions. We address this issue by offering a theoretical framework to explain how reputation shapes managers’ perceptions of their discretion as they attempt to navigate stakeholder expectations. In doing so we clarify and elaborate two forms of reputation—those rooted in a firm’s behaviors and those rooted in a firm’s outcomes—as well as two forms of discretion—managers’ perceived latitude of actions and their perceived latitude of objectives—thereby synthesizing and extending recent work in both the reputation literature and discretion literature. The intersection of social evaluations and managerial decisions remains an exciting and fruitful avenue of research, and we aim to illustrate how the insights from the meticulous efforts of scholars in both fields would benefit from further cross-pollination.