Restructuring to repair legitimacy: a contingency perspective

Wang, Pengii (2010) Restructuring to repair legitimacy: a contingency perspective. Corporate Governance, 18 (1). pp. 64-82.

[img]
Preview
PDF (Published Version) - Published Version
Download (208Kb)
View at Publisher Website: http://dx.doi.org/10.1111/j.1467-8683.20...

Abstract

Manuscript Type: Empirical

Research Question/Issue: This study examines the effectiveness of restructuring in repairing legitimacy after a firm is punished for financial fraud.

Research Findings/Insights: We use the antecedents of fraud to distinguish between three types of financial fraud and argue that different types of such fraud affect different dimensions of legitimacy. We also identify four types of restructuring and adopt a contingency perspective to argue that the type of restructuring adopted should match the dimensions of legitimacy affected for a successful legitimacy repair, which is proxied by a positive market response when the restructuring is announced. Using a sample of Chinese listed firms, we find that disassociation from illegitimate business operations and creation of valuable business operations are more effective in repairing legitimacy after fraudulent financial reporting. Disassociation from illegitimate organizational structures and creation of monitors are more effective following embezzlement or stock market manipulation. However, no type of restructuring is effective following improper accounting practice. Market investors value creation of monitors more than they do disassociation from an illegitimate organizational structure, and attach the same value to disassociation from illegitimate business operations and creation of valuable business operations.

Theoretical/Academic Implications: This study makes three contributions to the organizational legitimacy and corporate crisis management literature. First, it links corporate crises arising from financial fraud to social legitimacy. Second, it extends the number of restructuring types identified in the legitimacy literature to four, taking content and form as two dimensions. Third, it links corporate crises arising from financial fraud to the effectiveness of responsive restructurings via social legitimacy.

Practitioner/Policy Implications: Firms punished for financial fraud should signal restructuring according to the nature of the fraud and address the pertinent dimensions of legitimacy.

Item ID: 22470
Item Type: Article (Refereed Research - C1)
Keywords: corporate governance; financial fraud; social legitimacy; restructuring
ISSN: 0964-8410
Date Deposited: 18 Oct 2012 03:59
FoR Codes: 15 COMMERCE, MANAGEMENT, TOURISM AND SERVICES > 1503 Business and Management > 150310 Organisation and Management Theory @ 50%
15 COMMERCE, MANAGEMENT, TOURISM AND SERVICES > 1503 Business and Management > 150303 Corporate Governance and Stakeholder Engagement @ 50%
SEO Codes: 91 ECONOMIC FRAMEWORK > 9104 Management and Productivity > 910402 Management @ 100%
Downloads: Total: 13
Last 12 Months: 6
More Statistics

Actions (Repository Staff Only)

Item Control Page Item Control Page