How Firms’ Violations of Integrity Influence Employee Evaluations

Abstract Employees are a special category of stakeholders. They expect the firm to behave in a particular way, which forms the basis of a psychological contract (Rousseau, 1995). If the firm engages in irresponsible behavior, known as Corporate Social Irresponsibility (CSI), this may be seen as a violation of such expectations. Through the theoretical lenses of psychological contract and expectancy disconfirmation theory, we argue that there is a negative association between employees’ evaluations of management and CSI incidents that violate employees’ expectations of a firm’s integrity than in the case of other types of CSI incidents. We further investigate how a firm’s CSR performance and the media coverage of the CSI incident moderate the relationship between integrity violations and employees’ evaluations. Analyzing employee responses to 1596 CSI incidents involving 104 US public firms from 2016 to 2021, we find a negative association between integrity violations and employees’ evaluations of management. Moreover, media coverage serves a critical role in intensifying this relationship, whereas our post hoc analyses suggest that employee-related CSR may attenuate these negative responses. Our study contributes to the literature on CSI, psychological contract, and the media, exploring the responses of employees to integrity violations.