From Signals to Reform Narrative: Reputation Repair Following Corporate Environmental Misconduct

Past research has devoted significant attention to understanding how firms behave in the aftermath of misconduct to counter reputational threats. This research, however, primarily focused on identifying individual responses, without considering that in practice firms often combine multiple actions to signal reform. By integrating insights from narrative theory into signaling research, we argue that signals to conjointly restore reputation need to follow a certain pattern and logic—signals need to tell a reform narrative. Empirically, we conduct a longitudinal analysis examining and comparing different signaling behaviors of publicly traded U.S. firms in response to environmental misconduct. Consistent with our theory, we find that the effectiveness of multiple signals in restoring reputation rests upon their appropriate orchestration into a comprehensible and credible reform narrative. Taken together, our findings advance signaling theory by providing insights into how firms combine multiple signals over time. With it, we challenge prevailing assumptions of what renders signals effective. We show that when multiple coherent signals are logically sequenced and conjointly used, they do not necessarily need to be costly to be effective.