How firms respond to being rated

Aaron K. Chatterji; Michael W. Toffel

doi:10.1002/smj.840

journal article Jul 06, 2010

How firms respond to being rated

Aaron K. Chatterji Michael W. Toffel

Strategic Management Journal Vol. 31 No. 9 pp. 917-945 · Wiley

View at Publisher Save 10.1002/smj.840

Abstract

Abstract
While many rating systems seek to help buyers overcome information asymmetries when making purchasing decisions, we investigate how these ratings also influence the companies being rated. We hypothesize that ratings are particularly likely to spur responses from firms that receive poor ratings, and especially those that face lower‐cost opportunities to improve or that anticipate greater benefits from doing do. We test our hypotheses in the context of corporate environmental ratings that guide investors to select ‘socially responsible,’ and avoid ‘socially irresponsible,’ companies. We examine how several hundred firms responded to corporate environmental ratings issued by a prominent independent social rating agency, and take advantage of an exogenous shock that occurred when the agency expanded the scope of its ratings. Our study is among the first to theorize about the impact of ratings on subsequent performance, and we introduce important contingencies that influence firm response. These theoretical advances inform stakeholder theory, institutional theory, and economic theory. Copyright © 2010 John Wiley & Sons, Ltd.

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Details

Published: Jul 06, 2010
Vol/Issue: 31(9)
Pages: 917-945
License: View

Authors

A

Aaron K. Chatterji

Duke University, Durham, NC, USA; National Bureau of Economic Research, Cambridge, MA, USA

M

Michael W. Toffel

Harvard Business School, Boston, Massachusetts 02163

Cite This Article

Aaron K. Chatterji, Michael W. Toffel (2010). How firms respond to being rated. Strategic Management Journal, 31(9), 917-945. https://doi.org/10.1002/smj.840

How firms respond to being rated

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