Changes in the Salience of Collective Reputations: Information Disclosure and Shareholder Reactions

When people hold a collective reputation about a group of organizations, their common stereotype leads them to assess the organizations’ difficult-to-observe attributes as a homogenous group. Applying this concept to business management, our article posits that shareholders’ assessments of firms’ difficult-to-observe attributes will be homogeneous across industry peers, particularly when the industry’s collective reputation is highly salient in helping shareholders assess the group’s difficult-to-observe attributes. New information about these attributes can reduce the salience of the collective reputation, helping shareholders to make more individual and accurate assessments. In 1989, the U.S. EPA published the Toxic Release Inventory (TRI), providing for the first time detailed pollution emissions data for large manufacturing facilities. We use several analytic approaches, including multiplicative heteroskedastic linear regression models, and data on 570 firms across 22 industries, to examine how the TRI data release affected shareholder evaluations of firms. Results show that the TRI release increased heterogeneity in shareholder evaluations in industries with more salient collective reputations for firms’ environmental practices but not in industries with less salient reputations. This theoretical and analytical approach offers insights into how the influence of collective reputations can vary depending on its salience.