The Halo Effect and Social Evaluation: How Organizational Status Shapes Audience Perceptions on Corporate Environmental Reputation

Abstract

Although firms generally strive to enhance social evaluations, scholars have noted that such evaluations may not completely reflect actual performance of the firms. Extending this approach to the domain of environmental sustainability, we focus on the importance of social evaluation heuristics and explore how a firm’s status, or generalized evaluation not directly linked to environmental performance, plays a key role in shaping audience perceptions on its environmental reputation. Using multiple sources of data on 178 global companies’ green reputation, status, and environmental performance, our study shows that a firm’s status significantly enhances its environmental reputation assessed by general consumers and that the status effect varies significantly according to media frames. These findings illuminate the richness and complexity in the relations between status, reputation, and media-provided information in the area of environmental sustainability.

Keywords

social evaluations status reputation media-provided information halo effect

Introduction

Scholars have highlighted that firms generally strive to enhance perceptual evaluations, such as good reputations (Crilly, Zollo, & Hansen, 2012; Kim & Lyon, 2014; Marquis, Glynn, & Davis, 2007; McDonnell & King, 2013). This general tendency of firm behavior toward high social evaluations has also been widely noted in an array of domains in which the idea of environmental sustainability has gained public popularity (Bansal & Hoffman, 2012; Berthelot, Cormier, & Magnan, 2003; Lyon & Montgomery, 2015). For example, firms often disclose information pertaining to their dedication to preserving the natural environment to shape positive impressions and secure a good reputation from their audiences. Although it appears that a growing number of firms actively engage in a communicative strategy to promote their corporate reputation as “being green,” it is still not entirely clear whether such efforts reflect substantive activities that actually improve their environmental performance. As a result, studies have pointed out that a gap may arise between what firms claim to be and what they actually do—a situation often referred to as greenwashing (Bansal & Clelland, 2004; Lyon & Maxwell, 2011).

While insightful, this line of inquiry has a few notable limitations. First, many studies do not fully examine how audiences shape their perceptions in response to environmental performance, often relying on a simplistic assumption that audiences passively accept corporate claims and fail to evaluate them against actual environmental performance. Second, prior work has not fully disentangled various concepts of social evaluations in the domain of environmental sustainability, glossing over the complexity of how different forms of social evaluations, such as status and reputation, affect and are affected by each other. In particular, scholars have noted considerable ambiguity in explaining how these concepts of social evaluations unfold in conjunction with organizational performance (George, Dahlander, Graffin, & Sim, 2016; Piazza & Castellucci, 2014).

This study aims to address these issues by building on a few studies that clarify the distinction between reputation and status (Ertug & Castellucci, 2013; Washington & Zajac, 2005). As Piazza and Castellucci (2014, p. 292) suggest, “while reputation captures differences in quality or merit generating performance-based rewards, status captures differences in agreed-on social ranks generating privileges not related to performance.” We extend the conceptual distinction and empirically examine how status shapes environmental reputations after controlling for the influence of past performance. Our key premise is that a firm’s reputation as environmentally sustainable is not mechanistically determined by observable, quantifiable criteria such as greenhouse gas emissions, environmental costs, and other forms of environment-friendly activities. Rather, we posit that status, a firm’s generalized social evaluation not directly related to its environmental sustainability, will shape audience perceptions of specific reputations for its environmental sustainability.

We focus as a primary theoretical mechanism on the halo effect—a cognitive bias in which an impression of an entity in one area affects the observer’s opinion about the entity in other areas (Crane, 1965; Thorndike, 1920). The halo effect suggests that audiences attribute the positive perceptions of a firm with high status, or a factor loosely related to actual environmental performance, to the other evaluative area of environmental sustainability, thereby increasing the firm’s chances of attaining social recognition as “being green.” This is usefully viewed as a cognitive process in which decision makers rely on an uncertainty-reducing decision heuristic especially when they cannot access objective information as a result of inherent cognitive limits and high search costs (Cyert & March, 1963; Tversky & Kahneman, 1974). Following this view, we argue that the halo effect of status arises since it serves as an uncertainty-reducing evaluation rule based on second-best information—that is, status-driven generalized information not directly linked to environmental performance. We also examine a condition under which audiences reevaluate status-implied information and thereby make the influence of status on environmental reputation more or less salient. In particular, we focus on the role of media-provided information in affecting the relationship between status and environmental reputation (McCombs, Llamas, Lopez-Escobar, & Rey, 1997; Pollock & Rindova, 2003).

We empirically examine our arguments using multiple sources of data on 178 global companies’ reputation, status, and environmental performance. In the domain of environmental sustainability, audiences broadly include general consumers, field experts, and mass media, among others (Perrault & Clark, 2016; Sroufe & Gopalakrishna-Remani, 2019). Although they all by and large contribute to social evaluations of corporate environmental sustainability, this study focuses on general consumers as they are most suitable to test our arguments. In additional analyses, we further examine whether the halo effect operates for field experts and how media plays a role in providing consumers with relevant information and reshaping the halo effect of status. Taken together, our study provides a more complete picture of audiences’ reputational evaluation in the context of corporate environmental sustainability.

Theory and Hypotheses

Social Evaluation of Corporate Environmental Sustainability

How audiences shape their evaluative perceptions of firms has been the subject of academic discussions in a wide range of organization and management studies (Berg, 1985; Bitektine, 2011; Dutton & Dukerich, 1991; George et al., 2016; Gioia, Schultz, & Corley, 2000). In particular, the concept of reputation has gained considerable attention in the literature (Fombrun, 1996; Russo & Fouts, 1997). Studies have traditionally taken an economics-driven approach to examine how prior organizational performance and demonstrations of quality shape reputational assessments by audiences in business sectors (e.g., Barnett, Jermier, & Lafferty, 2006; Rindova, Williamson, Petkova, & Sever, 2005; Washington & Zajac, 2005). According to the approach, audiences form their perceptions of a firm primarily on the basis of its actual behaviors or performance in the past; therefore, a firm’s past action constitutes its reputation for such an action. In this sense, reputation represents “an explicit extrapolation from past to future behavior” (Deephouse & Suchman, 2008, p. 61) and its influence becomes more salient under uncertainty—that is, when there is no directly observable evidence for quality.

Following this line of work, we view a firm’s reputation for environmental sustainability as evaluative perceptions assessed by audiences with regard to its past environmental activities and achievements (Perrault & Clark, 2016; Sroufe & Gopalakrishna-Remani, 2019). Environmental reputation is increasingly important with the rise of global concerns about climate change, natural resources, and pollution (Bansal & Hoffman, 2012). External audiences such as consumers tend to consider environmental reputation to be a significant evaluative criterion for organizations (Delmas & Toffel, 2004; Luo & Bhattacharya, 2006; Mustonen, Karjaluoto, & Jayawardhena, 2016). Studies have suggested that external perceptions on environmental activities strongly shape firm performance and survival chance (Carlos & Lewis, 2017; Crilly et al., 2012; Kim & Lyon, 2014; Marquis et al., 2007; McDonnell & King, 2013). In contrast, firms deemed environmentally irresponsible may have to face public scrutiny, social sanctions, and loss of legitimacy (Lyon & Maxwell, 2011; Wagner, Lutz, & Weitz, 2009). A recent Volkswagen scandal is a good example of how public uproar can cause significant damage to a firm (Siano, Vollero, Conte, & Amabile, 2017).

The conventional approach to organizational reputation predicts that if the current quality of firms with respect to environmental sustainability is imperfectly observable, the firms that have previously demonstrated superior environmental performance, informed by objective and quantifiable measures such as greenhouse gas emissions and energy efficiency, should be evaluated favorably by audiences. In other words, prior work has highlighted the coupling relationship between a firm’s reputation and its past performance. This relationship holds under an assumption that external audiences are able to access objective and accurate information on the firm’s past performance associated with environmental activities.

We argue that this assumption, albeit reasonable in theory, is often challenged in reality. Scholars have noted that decision makers tend to face uncertainty—lack of information sufficient to make informed decisions—and fail to completely resolve it because of the inherent cognitive limit and high cost of searching for information (Cyert & March, 1963; March & Simon, 1958). In such situations, they often rely on decision heuristics to address the uncertainty. For instance, decision makers, when facing uncertainty, draw inferences from information implicit in the actions of others instead of pursuing the costly practice of seeking out new, high-quality information (DiMaggio & Powell, 1983; Haunschild & Miner, 1997; Lieberman & Asaba, 2006). Similarly, if audiences cannot gain access to objective information on a firm’s past environmental performance, they are likely to rely on second-best information that is not directly relevant to past performance of environmental sustainability. Consequently, the audiences’ reputational evaluation may not be closely aligned with the firm’s past performance.

This line of reasoning allows us to develop a key theoretical argument of information access that may explain why audiences rely on cognitive heuristics and to explore conditions under which the heuristics’ influence becomes more or less salient. We suggest that audiences use the heuristics to reduce uncertainty in evaluating a firm’s reputation and stop using them when objective information becomes available and thus uncertainty is resolved. The implication is that the salience of heuristics depends on the extent to which audiences can access information to guide their reputational evaluations (referred to as the information access argument hereafter). In the next section, we develop our hypothesis arguing that status is usefully viewed as a form of evaluation heuristics that largely affect how audiences shape a firm’s environmental reputation. We also examine what can explain variations in the influence of status on reputational evaluations.

The Halo Effect of Status on Environmental Reputation

The halo effect refers to a cognitive process in which an impression of an entity in one area affects the observer’s opinion about the entity in other areas (Crane, 1965; Sundar & Kellaris, 2017; Thorndike, 1920). Although initially introduced to explain a human perceptive bias, the concept of halo effects has been widely used in a variety of empirical settings, including university technology licensing (Sine, Shane, & Gregorio, 2003) and corporate social responsibility perceptions (Smith, Smith, & Wang, 2010). Extending this line of work, we suggest that the halo effect is particularly useful in analyzing how audience perceptions of environmental reputation unfold. The halo effect occurs when audiences depend on second-best information in making reputational evaluation even if the information is not directly relevant to environmental performance (Christmann, 2004).

We focus on status as a general attribute that elicits a halo effect on environmental reputation. Status has generally been conceptualized as “a socially constructed, intersubjectively agreed-upon and accepted ordering or ranking of individuals, groups, organizations, or activities in a social system” (Washington & Zajac, 2005, p. 284). In an organizational field, for example, status is often manifested in the form of general rankings published by prominent media outlets and institutional intermediaries, such as Fortune’s list of the “World’s Most Admired Companies,” U.S. News & World Report’s “Best Colleges,” and the QS (Quacquarelli Symonds) “World University Rankings,” to name a few. Although audiences associate status with quality and worth, such associations represent an overall assessment of a firm’s positional attribute in a ranking system and thus do not necessarily reveal the true quality of specific actions in a narrowly defined area. In this regard, scholars have noted that status is loosely coupled with the quality of specific performance (Podolny, 1993; Rindova, Pollock, & Hayward, 2006).

Applying this logic, we posit that a firm’s high status serves as an evaluation heuristic that positively influences its reputation for environmental sustainability. More specifically, we suggest that audiences are likely to rely on status as a source of second-best information and make reputational assessments favorably for high-status firms. As high status generally increases social visibility and credibility, audiences tend to associate the firm with positive evaluations (Benjamin & Podolny, 1999; Podolny, 1993). Such evaluations are driven by a firm’s positional attribute, not exclusively by information on its specific actions and performance in the past. As a result, a halo effect occurs: A firm’s high status increases audiences’ positive perceptions of its environmental reputation.

As noted earlier, a critical condition under which the halo effect arises is the limited accessibility of objective information. Thus, it is possible that the validity of our argument relies on audience capability to overcome the information access constraints and to obtain such information. For instance, a group of field experts including corporate social responsibility professionals, academics, environmental experts, and industry executives are apt to have the ability and willingness to access a variety of corporate environmental performance from expensive and restrictive data sources including Bloomberg New Energy Finance, Thomson Reuters ASSET4, and Trucost’s environmental, social, and governance analysis, to name a few. Since the information access argument holds under the condition of limited accessibility, field experts are not susceptible to the halo effect. Hence, these field experts are a less preferred group from which to examine the halo effect of status.¹

In contrast, we believe that general consumers are suitable for testing our argument because they provide some analytic advantages to detect the influence of high status on environmental reputation. Unlike field experts, general consumers suffer from limited capacity and motivation to gain access to highly restrictive data and objective information on environmental performance. General consumers are often exposed to company-generated information such as sustainability reports, product labels, and marketing campaigns. Such information, while more easily available to general consumers, is not entirely objective. Thus, we suggest that general consumers meet the condition under which we can test the underlying mechanism of information access arguments. Taken together, we predict that

Hypothesis 1: A firm’s status will increase consumers’ positive perceptions of its environmental reputation.

Variation in the Halo Effect: Media Frames

We further strengthen the causal argument of information access by probing the role of media-provided information in reshaping the relationship between status and environmental reputation. If the causal mechanism proposed in Hypothesis 1 operates, one should expect that the salience of status changes under conditions that general consumers gain access to alternative sources of information. In this study, we focus on media-provided information since scholars consistently note that the media serves as an important means to frame information about a firm in positive and negative terms (Gitlin, 1980; McCombs, 1981; McCombs, Llamas, Lopez-Escobar, & Rey, 1997; Rogers, Dearing, & Bregman, 1993). Through framing, the media can present consumers with information on the issues of firms it selects for coverage and thereby change the influence of high status on positive reputational evaluations.

We argue that the influence of status is likely to vary according to framing. Social cognition research provides the microfoundations for explaining how media framing shapes cognitive processes of social evaluation and judgment (Fiske & Taylor, 1991; Heath & Tversky, 1991). Gitlin (1980, p. 7) views media frames as “persistent patterns of cognition, interpretation, and presentation, of selection, emphasis, and exclusion, by which symbol-handlers routinely organize discourse.” By framing a firm’s action and choice in positive or negative terms, the media situates information about the firm within social and cultural grounds on which to evaluate the appropriateness and desirability of its actions. Therefore, the framing conveyed by media-provided information about a firm may affect sociocognitive processes in which consumers construct a corporate image and impression. For instance, consumers perceive negatively framed information about a firm to be public disapproval of the firm (Elsbach, 1994; Pollock & Rindova, 2003; Rao, Greve, & Davis, 2001).

These sociocognitive processes may reshape the influence of status on environmental reputation. To the extent that negative media coverage about a high-status firm is perceived as a valid evaluation of the public, consumers are likely to believe that information derived from high-status (i.e., a positive assessment of a firm’s positional attribute in a ranking system) is inconsistent with the negative impression delivered by the media. Given the inconsistency, consumers may reevaluate the validity of positive connotations associated with high status and eventually stop relying on the evaluation heuristic. Taken together, we predict that the influence of status on reputational evaluation will be weaker when the proportion of media-provided negative information about a firm is high than when it is low.

Hypothesis 2: The proportion of media-provided negative information about a firm will weaken the relationship between high status and consumers’ positive perceptions of its environmental reputation.

Method

Data and Sample

We constructed an extensive data set by using multiple sources such as the 2012 Newsweek Green Reputation Score, 2010 Newsweek Green Ranking, Fortune’s World’s Most Admired Companies for reputation and status, and Trucost and LexisNexis for corporate environmental performance, media-provided information, and other control variables. First, a primary source of our data for the company’s environmental reputations is the 2012 Newsweek Green Reputation Score. According to Newsweek, the Green Reputation Score was developed to collect consumer-evaluated environmental reputation in 2012 via the partnership with Landor Associates, a brand consulting and design firm, and Penn Schoen Berland, a research and communication firm. The reputation scores were collected through online survey of 251 companies with a sample of 8,743 American adults. Each respondent evaluated a random selection of 13 to 15 major brands with questions regarding the firms’ various sustainability attributes such as “the firm is a green company,” “the firm is an environmental leader,” and “the firm has environmentally friendly products.” The resulting responses included the largest 215 U.S. consumer-facing brands and 36 major foreign consumer brands. Newsweek notes that the data were then weighted to ensure a representative sample of the U.S. population. Thus, we decided to use Newsweek’s Green Reputation Scores as the main data source from which we can identify the consumer-evaluated environmental reputation for each firm, the main dependent variable of our analysis.

Newsweek also provides the Reputation Score as a subset of the 2010 Newsweek Green Ranking. According to Newsweek, the score was based on an online survey at CorporateRegister.com, which collected opinions from field experts, such as corporate social responsibility professionals, academics, environmental experts, and industry executives. The survey went out to 14,921 users who were registered to corporateregister.com and asked each respondent to rate a random sample of 15 companies on a sliding scale of 1 to 100 in three key green areas: environmental performance, commitment, and communications. Of those surveyed, 2,480 individuals were identified particularly as “sector specialists”—those having a specific working knowledge of environmental issues within their industry—and were asked only to score companies in their sector of expertise. It is notable that CorporateRegister.com accepted responses from individuals whose identity and details had been verified as sector specialists, and any scores given to a company by its own employees or its hired consultants were disregarded. Any responses with suspicious scoring patterns were not included, either. Survey responses were collected over 6 weeks, from July 1, 2010, to mid-August, and the final response rate was 12%, higher than is typical of most public opinion polls. Given this reliable response collecting procedure performed by Newsweek, we decided to use the 2010 Newsweek Green Ranking as the source from which we collected environmental reputation evaluated by sector specialists. This expert-evaluated reputation was used as the dependent variable in our robustness test to confirm if our key mechanism of information access would operate differently between two groups of actors, general consumers, and field experts.

Second, we used Fortune magazine’s “World Most Admired Companies” list as the main source of company’s status. Fortune is renowned for the company lists in various regards and the lists are widely used for academic studies especially in the area of organization and management studies as well as of strategic management studies (e.g., Waddock, 2008). Fortune began to report “World Most Admired companies” list since 1983, and the list has been also regarded as a reliable source for recognizing the company’s overall social standing (Fombrun, 1996; Fombrun, Gardberg, & Sever, 2000). The most admired list is typically selected by a survey partner, such as Hey Group. In 2011, for example, survey specialists collected about 1,400 firms and selected the 15 largest for each international industry and the 10 largest for each U.S. industry. Given the selected industries, Hey Group then asked a sample of 4,100 executives, directors, and securities analysts to select the 10 companies they admired most on multiple criteria, such as innovation, people management, and financial soundness. Given this reliable feature of Fortune’s “World Most Admired Companies,” we used it as the main source from which we constructed the measure of firm’s status, the main independent variable of our analysis.

Third, to collect the corporate environmental performance from many aspects, we used the report of Trucost, which is known as a leading research organization in the field of environmental management (Olsen, Slotegraaf, & Chandukala, 2014). Last, we used LexisNexis to collect the information about news regarding the sampled companies. By merging the multiple data sources, we made our final data set in which 178 company-level observations were identified about all the variables. This process of data collection also allowed us to avoid sampling on reputation scores (i.e., our dependent variable), thereby reducing a risk of sample selection bias and false inference.

Variables

Dependent Variable: Environmental Reputation

In our analysis, we used consumer-evaluated environmental reputation scores reported by the 2012 Newsweek Green Reputation Score as our main dependent variable. The reputation score is constructed to range from 0 to 100 as a higher score represents a higher reputation. In addition to the main analysis in which consumer-evaluated environmental reputation was examined as the dependent variable, we conducted separate analyses using expert-evaluated environmental reputations for robustness checks. We used expert-evaluated reputation scores available from in the 2010 Newsweek Green Ranking. The score also ranges from 0 to 100 as the consumer-evaluated environmental reputation score does.

Independent Variable: Residualized Measure of Organizational Status

Organizational status, our independent variable, is originally measured by the Fortune magazine’s “World Most Admired Companies” list. Prior to using this original status measure in our analysis as it is, we have recognized that one may raise methodological concerns that the current organizational status measure of the Fortune magazine is very likely to have systematically included the company’s environmental performance in it. Fortune’s status measure is comparatively an inclusive concept, which may eventually entail performance-based effects in the current organizational status measure. That is, a regression analysis may produce seriously distorted results if the independent variable is overlapped with performance variables in some aspects (Brown & Perry, 1994).

A residual analysis can mitigate such methodological concerns by separating the portion of our predictor variable that captures variation in environmental capability to affect performance from that which relates to status alone. Nonresidualized measures of status do not clearly show whether the halo effect on reputation result purely from status or a firm’s unobserved environmental capability. As this issue becomes particularly serious if the variables are highly correlated (Sine et al., 2003), we can conduct a more precise test by taking a partialing-out approach—that is, creating a residualized measure that captures a specific portion of status unrelated to past performance. We calculated this residualized organizational status by regressing the Fortune’s original status score on measures of environmental performances—direct external costs and indirect external costs—reported by Trucost.²

Moderating Variable: Media-Provided Information

To measure the extent to which a company is exposed to media over the observation periods, we collected the media-related information for the sampled companies from LexisNexis, which is broadly used by academic research as a most renowned media database (e.g., Pfarrer, Pollock, & Rindova, 2010; Pollock & Rindova, 2003).³ More specifically, we constructed a proportion measure of media-provided negative information by using the Negative Business News post-search filter from LexisNexis Advance, the feature that returns news articles of the company with a significant level of negative language.

Control Variables

We controlled for a group of variables that may influence the perception of a firm’s environmental reputation. First, we included two environmental performance variables which are also used in the residual analysis of our independent variable: direct external costs and indirect external costs. We obtained data for these variables from Trucost, which analyzes external impacts that a company has on the environment and converts them in financial terms for cross-firm comparison. Total external impacts consist of direct and indirect components. For example, a direct impact includes the water that a company acquires directly from a river, while an impact is considered indirect if the water is provided by a utility company. The sum of all the direct and indirect external environmental costs of the company is expressed in USD. As these variables were skewed to the left, we logarithm-transformed them for analyses. In a separate analysis, we also included two additional measures of environmental performance, direct CO₂ emissions and carbon footprint.⁴ As the four measures were highly correlated, our main analysis used two of them: direct and indirect external costs. We ran a series of analyses as a robustness test using different combinations of the measures; these analyses showed results very similar to those in the main analyses.

Second, we controlled for organizational characteristics. Organizational age was measured as elapsed year from company’s founding year. The information about founding year was obtained from LexisNexis and cross-checked through Datastream. Organizational size is measured by two separate variables such as Assets and Revenue. These variables were included into our analyses after logarithm transformation to mitigate the left-skewed problems.

Third, we considered whether a company engaged in communication to stakeholders in order to enhance its sustainability recognition. As scholars in the domain of environmental management have emphasized the importance of public disclosure regarding environmentally sensitive operations (Du, 2015), we controlled for information disclosure by creating a dummy variable of carbon disclosure that indicates whether or not the focal firm disclosed the amount and sources of its carbon dioxide emissions in the annual report.

Fourth, we controlled for the effect of country origin and industries. We created a dummy variable that indicates the company’s country origin (1 = USA origin, 0 = otherwise) by following prior research (Darnall, Henriques, & Sadorsky, 2008). As industries are differently sensitive to environmental issues (Philippe & Durand, 2011), we included industry dummies based on Industry Classification Benchmark Super Sector to control for industry idiosyncrasies.

Finally, we controlled for the profitability of the company by including ROA. Some studies note that financial performance explain from 42% to 53% of the variance of the overall rating of firms in the Fortune survey (Fombrun & Shanley, 1990; McGuire, Schneeweis, & Branch, 1990). We also used the measures of financial performance such as return on assets (ROA) and earnings before interests and tax (EBIT) in separate analyses to check whether financial performances would moderate the positive relationship between status and environmental reputation. We found no significant change in our main results.⁵

Analysis

In this study, we aim to investigate the effect of a firm’s status on the consumer-evaluated environmental reputation as well as the moderating effect of our media-provided information variable. To estimate the proposed effects of independent and moderating variables on environmental reputation, we examined several candidate estimation methods by focusing on the statistical features of our dependent variable. As the dependent variable of this study is a continuous variable and it reasonably approximates normal distribution, the ordinary least squares regression is an appropriate estimation technique for our analysis (Hayes, 2013). In the regression analyses, we made sure that all the explanatory variables—that is, independent, moderating, and control variables—were time lagged by at least 1 year to the dependent variables.

Results

Table 1 reports the descriptive statistics of the variables included in the analyses and the pairwise correlations between the variables. It is noteworthy that there is quite a lower correlation between the consumer-evaluated environmental reputation and organizational status (r = 0.14). We conducted a variance inflation factor (VIF) test to see whether our models might exhibit multicollinearity problems. Following the well-accepted guideline that a VIF of greater than 10 indicates a serious multicollinearity problem, we confirm that the VIF scores of our models range from 3.12 to 3.37 and conclude that our analysis does not suffer from critical issues of high correlations (Hair, Anderson, Tatham, & Black, 1995; Menard, 1995). In addition, we also use mean-centering variables in interaction tests by paying careful attention to the concerns that adding interaction term to a regression model may automatically cause multicollinearity problems as the product of two variables tends to be highly correlated with the variables comprised in the product (Aiken & West, 1991).

Table 1.

Descriptive Statistics and Pairwise Correlations.

Variables	M	SD	1.	2.	3.	4.	5.	6.	7.	8.	9.	10.
1. Environmental reputation	57.63	5.02
2. Ln (direct external cost)	4.37	1.75	0.07
3. Ln (indirect external cost)	6.85	1.27	0.08	0.70
4. Age	79.03	50.08	0.01	0.20	0.25
5. Ln (assets)	10.64	1.88	−0.04	0.06	0.21	0.14
6. Ln (revenue)	11.38	0.96	−0.04	0.48	0.71	0.24	0.55
7. U.S. origin (dummy)	0.83	0.39	−0.01	−0.07	−0.22	−0.15	−0.35	−0.27
8. Carbon disclosure (dummy)	0.57	0.50	0.02	0.09	0.16	0.16	0.14	0.15	−0.15
9. Return on assets	0.10	0.08	0.10	0.12	0.09	−0.13	−0.34	−0.14	0.25	−0.16
10. Status	0.03	0.98	0.14	0.09	0.04	−0.06	−0.01	0.06	0.29	−0.08	0.43
11. Negative news ratio	0.27	0.10	0.03	−0.12	−0.09	0.10	−0.01	−0.09	−0.17	0.06	−0.20	−0.28

Note. N = 178. Industry dummies are included in the analyses but not reported due to space limitations.

Table 2 shows the results of the regression analyses in which the consumer-evaluated environmental reputation is regressed on explanatory variables. Model 1 is the baseline model in which only the control variables are included. From Model 2 to Model 4, we included our independent variable—status—as a residualized measure. In all models reported in Table 2, status positively influences the consumer-evaluated environmental reputation. These findings confirm the halo effect proposed in Hypothesis 1, predicting that consumer-evaluated reputation for a company’s environmental sustainability will be significantly influenced by its status, even after controlling for the influence of environmental performance.

Table 2.

Results of Regression Analysis: Consumer-Evaluated Environmental Reputation as a Dependent Variable.

Variables	Model 1	Model 2	Model 3	Model 4
(Constant)	58.05** (6.41)	61.77** (6.52)	61.55** (6.57)	66.12** (6.55)
Ln (direct external cost)	−0.09 (0.31)	−0.11 (0.31)	−0.10 (0.31)	−0.02 (0.30)
Ln (indirect external cost)	0.40 (0.54)	0.47 (0.53)	0.47 (0.53)	0.57 (0.52)
Age	0.00 (0.01)	0.00 (0.01)	0.00 (0.01)	0.00 (0.01)
Ln (assets)	0.50 (0.29)	0.46 (0.29)	0.46 (0.29)	0.47 (0.28)
Ln (revenue)	−1.13 (0.69)	−1.37* (0.69)	−1.36 (0.69)	−1.79** (0.69)
U.S. origin (dummy)	1.15 (1.12)	0.49 (1.14)	0.52 (1.14)	0.01 (1.13)
Carbon disclosure (dummy)	−0.04 (0.78)	−0.03 (0.77)	−0.04 (0.77)	−0.21 (0.76)
ROA	−0.30 (5.73)	−6.48 (6.23)	−6.28 (6.28)	−6.48 (6.11)
Status		1.06* (0.45)	1.08* (0.45)	1.42** (0.45)
Negative news ratio			1.37 (4.25)	−4.49 (4.53)
Status × Negative news ratio				−10.23** (3.23)
R ²	0.14	0.17	0.17	0.22
df	15	16	17	18

Note. N = 178. ROA = return on assets; df = degrees of freedom. Standard errors are in parentheses; industry dummies are included but not reported due to space limitations; mean centering is applied to the variables involved in interaction tests.

p < .05. **p < .01.

In Models 3 and 4, we test Hypothesis 2 by including the ratio of negative news. In Model 3 in which the main terms of organizational status and negative news ratio are included, the negative news ratio is found to have no significant influence on consumer-evaluated environmental reputation independently, while organizational status still has significant influence. In Model 4, in which the interaction term of organizational status and negative news ratio is eventually included, the result shows that the positive influence of organizational status on environmental reputation perceived by consumers is significantly weakened by the ratio of negative news.⁶

Supplementary Analyses and Robustness Tests

We conducted additional analyses, available separately from the authors, in which expert-evaluated environmental reputation is included as the dependent variable. Because of the limitation to the data access, the expert-evaluated environmental reputation used in these analyses were of 2010, not consistent with the 2012 consumer-evaluated reputation, and the time point of all the explanatory variables was set as 2009 to give 1-year time lag between the dependent variable and the explanatory variables. Our results show that status does not have significant influence on expert-evaluated environmental reputation. The finding clearly indicates the boundary condition of our information access arguments. As suggested in our theory section, status has a salient effect on reputation; however, its effect depends on whether the audiences have limited ability and willingness to gain access to relevant information. The insignificant results may be driven by the strong capability of field experts to access restrictive information on corporate environmental performance, providing greater confidence in our arguments.

One may also point out that financial performances would influence the halo effect of organizational status on socially evaluated environmental reputations, just as the way that media framing influenced the halo effect in our findings (cf. Brown & Perry, 1994). To examine whether a company’s profitability affects the halo effect of its organizational status, we conducted additional analyses in which two financial performance measures were included as moderating variables: EBIT and ROA. As EBIT was highly skewed to the left, we used its logarithm-transformed measure. Table 3 reports that neither EBIT nor ROA had a significant effect on consumer-evaluated environmental reputation. These results appear to strengthen our arguments since they suggest that the halo effect of high status on environmental reputation is not significantly intertwined with the financial performance halo.

Table 3.

Results of Regression Analysis: Consumer-Evaluated Environmental Reputation as a Dependent Variable and Profitability as an Explanatory Variable.

Variables	Model 1	Model 2	Model 3	Model 4	Model 5	Model 6
(Constant)	58.00** (6.35)	60.33** (6.37)	60.19** (6.42)	60.41** (6.52)	62.49** (6.46)	63.01** (6.51)
Ln (direct external cost)	−0.09 (0.31)	−0.10 (0.31)	−0.09 (0.31)	−0.08 (0.31)	−0.10 (0.31)	−0.07 (0.31)
Ln (indirect external cost)	0.40 (0.53)	0.39 (0.53)	0.42 (0.53)	0.42 (0.54)	0.49 (0.53)	0.49 (0.53)
Age	0.00 (0.01)	0.00 (0.01)	0.00 (0.01)	0.00 (0.01)	0.00 (0.01)	0.00 (0.01)
Ln (assets)	0.50 (0.29)	0.51 (0.28)	0.69 (0.53)	0.68 (0.53)	0.42 (0.29)	0.40 (0.29)
Ln (Revenue)	−1.13 (0.69)	−1.29 (0.68)	−1.32 (0.69)	−1.36 (0.72)	−1.38* (0.68)	−1.41* (0.68)
U.S. origin (dummy)	1.14 (1.08)	0.37 (1.13)	0.39 (1.14)	0.33 (1.17)	0.51 (1.13)	0.54 (1.13)
Carbon disclosure (dummy)	−0.04 (0.77)	0.06 (0.77)	0.00 (0.78)	0.00 (0.79)	−0.10 (0.77)	−0.16 (0.77)
Status		0.86* (0.41)	0.95* (0.46)	0.50 (2.12)	1.14** (0.44)	0.80 (0.63)
Ln (EBIT)			−0.20 (0.48)	−0.16 (0.52)
Status × Ln (EBIT)				0.05 (0.23)
ROA					−9.58 (5.65)	−11.38 (6.16)
Status × ROA						3.78 (5.11)
R ²	0.14	0.16	0.16	0.16	0.18	0.18
df	14	15	16	17	16	17

Note. N = 178. ROA = return on assets; df = degrees of freedom; EBIT = earnings before interests and tax. Standard errors are in parentheses; industry dummies are included but not reported due to space limitations; mean centering is applied to the variables involved in interaction tests.

p < .05. **p < .01.

Discussion

We have taken the view that suggests that decision makers often rely on an uncertainty-reducing decision heuristic that is grounded in little information especially when they suffer from the inherent cognitive limits and high search costs (Cyert & March, 1963; March & Simon, 1958). A prediction derived from this view is that such a heuristic will remain salient as long as decision makers are characterized by limited accessibility to objective information, including performance metrics regarding environmental sustainability. If so, a firm’s reputation for environmental sustainability might not be dictated by purely objective measures of environmental performance. Instead, status-driven generalized information not directly linked to environmental performance may affect how audiences make reputational evaluations. The results of our analysis for Hypothesis 1 have provided support for this argument. This can be regarded as the halo effect because the generalized attribute of a high-status firm has a significant effect on audience perceptions about the firm’s environmental reputation over and above the reputation expected by its past environmental performance.

A related prediction derived from the information access argument is that the salience of halo effects may change according to the availability of information from other sources. We have focused on the role of media in shaping sociocognitive processes in which the media-provided information frames the descriptions of firms in negative terms and thereby affects impression formation and judgment of decision makers (Pollock & Rindova, 2003; Pollock, Rindova, & Maggitti, 2008). The inconsistency between positive evaluations implied by high status and media-provided negative news may cause decision makers to reevaluate the validity of reputational assessments. The significant results of our analyses for Hypothesis 2 have provided strong support for this line of arguments.

As our supplementary analyses show, the hypothesized effects were not significant when examining expert-evaluated reputation scores. This result further strengthens our causal arguments: corporate social responsibility professionals, academics, environmental experts, and industry executives, who have the specific working knowledge of environmental issues and the capacity to gain access to various sources of objective information on environmental performance, would avoid relying too much on the evaluation heuristic that uses status-derived information.

Theoretical Implications

Our article makes the following contributions. First, we disentangle two ideas of social evaluations—status and reputation. The two concepts share some attributes, leading to confusion and conflations (Ertug & Castellucci, 2013; Jensen & Roy, 2008). A key source of such complications is the role of past performance in affecting social evaluations. Some researchers have argued that the concepts of status and reputation are difficult to differentiate in part because both emerge from past performance, whereas others point out that status is less strongly coupled with actual performance than is reputation (Benjamin & Podolny, 1999; Piazza & Castellucci, 2014; Podolny, 1993). Our study focuses on the conceptual distinction and increases our understanding of the roles that status and reputation play in conjunction with past performance. As Deephouse and Suchman (2008, p. 60) note, juxtaposing these concepts can “reveal important connotations of each that would remain largely invisible” if considered in isolation. In this regard, our study shows that disentangling two concepts reveals an interesting insight: The social evaluations associated with status are broad in scope and remain influential independent of past performance. This implies that a high-status firm may transfer the positive influence of status across different domains of social evaluations, an important advantage that a low-status firm cannot easily take in the pursuit of sustainable development and environmental reputation.

Second, our study addresses an important complication embedded in the empirical analysis of status, reputation, and media coverage. Prior studies have inferred status from organizational affiliations and measured performance using indirect proxies, such as past market presence (Podolny, 1993), occurrence dependence (Podolny & Stuart, 1995), and media coverage with higher article counts of press mentions indicating higher status. We speak to two important issues of the prior studies. On one hand, indirect proxies of status are not helpful in demonstrating whether its observed influence on reputation results from the hypothesized effects. The two concepts of status and reputation may arise from past performance, making it difficult to disentangle them empirically. As long as past performance is correlated, albeit differentially, with status and reputation, it is critical to control for the effects of past performance when analyzing the influence of status on reputation. To resolve this issue, our analytic procedures utilized the residualized measure of status. The central idea of conducting residual analyses was to separate the portion of our predictor variable that could capture variation in a firm’s environmental capability to affect its sustainability performance from that which related to status alone. In other words, a residualized measure of status specifically captured the portion of status unrelated to past performance, providing a more precise test of our theory.

On the other hand, we have shifted our attention away from prior work that treated media coverage and status as the same variables (Castellucci & Ertug, 2010; Perrault & Clark, 2016). While the total volume of media coverage is often viewed as a legitimate measure of status that captures the components of social visibility and prominence, this study points to the intriguing possibility that status and media coverage may move in different directions. That is, distinguishing media coverage from status is useful in detecting the inconsistency between positive information signaled by high status and negative information provided by media. This idea of information (in)consistency has enabled us to examine conditions under which audiences become more or less dependent on the evaluation heuristic of status. It is worth noting that the interaction between status and the volume of media coverage was not statistically significant, suggesting that the amount of information did not affect the halo effect of high status. As the contrasting results show, it is information inconsistency, not the simple amount of information, that helps general consumers to critically reevaluate the validity of status heuristics.

Third, this study avoids a deterministic approach to the role of cognitive heuristics in social evaluation. While general consumers are limited in their ability to access relevant information, they do not blindly accept the value of status as an evaluation heuristic that is easily accessible. In particular, our study points to the role of media-provided information in triggering a deliberate information processing and reshaping the influence of status on reputational evaluations. In this regard, our study suggests that decision makers are viewed not as “cognitive dopes” who always accept external information derived from generalized social evaluation such as status but as “cognitive misers” who use the information to economize on search costs and proactively make sense of it depending on information accessibility (Rao et al., 2001). In sum, although the mechanisms of social influence in markets have been proven to be valid and relevant by numerous studies that examine a variety of organizations and their stakeholders (Perrault & Clark, 2016; Russo & Fouts, 1997; Sroufe & Gopalakrishna-Remani, 2019), important details remain to be understood. Given that firms in general strive to enhance perceptual evaluations in diverse settings (Kim & Lyon, 2014; Marquis et al., 2007; McDonnell & King, 2013), our implications regarding the complex relationship among status, reputation, and media can be broadly applicable to other domains.

Limitations and Future Research Directions

Although the robustness checks and supplementary analyses conducted as part of this study strengthened confidence in our core theoretical arguments, it is important to be transparent about potential limitations and to be cautious when drawing conclusions from these findings. First, this study has some data constraints that should be addressed in future research. Although Newsweek claims that the survey was carefully administered to enhance methodological rigor, it discloses a limited amount of information to fully assess the validity and reliability of its survey instruments. Additionally, Green Reputation scores collected by Newsweek may not completely capture a representative sample of U.S. residents. This might have prevented us from obtaining accurate measures of reputation, and estimation with limited and incomprehensive data might be problematic. Newsweek notes that the data were weighted to ensure a representative sample of the U.S. population, yet it does not provide any specific information on the demographics. To our knowledge, there are some empirical studies using Newsweek as the main source of data (e.g., Cho, Guidry, Hageman, & Patten, 2012; Cordeiro & Seo, 2014; Lyon & Shimshack, 2015; Sroufe & Gopalakrishna-Remani, 2019), and we believe this is because data available from Newsweek are of acceptable quality.

Second, this study focuses on large companies in the context of environmental sustainability, potentially limiting the generalizability of our findings. Thus, it is valuable to explore various contextual and organizational settings to examine whether our findings would hold and if so, to what extent. In the current article, we examined media framing as a key factor for our moderating effects. However, we note that additional conditions are likely to play a role. For instance, it is valuable to examine the influence of unexpected environmental disasters and business scandals that receive extensive media coverage, such as the Exxon Valdez oil spill in 1989 and the Volkswagen emissions-fixing scandal in 2015 (Barnett & King, 2008; Patten, 1992; Rhodes, 2016). These critical events are likely to affect how audiences evaluate corporate environmental reputation and prompt audiences to rely less on evaluation heuristics.

Third, future research is needed to explore how different audiences affect and are affected by each other, and how such interdependencies amplify or constrain their influence on companies that strive to maintain and increase social evaluations. Our study taps into the idea of audience heterogeneity by analyzing general consumers and field experts, yet it is valuable to further probe the diverging roles of other audiences in shaping social evaluations. Focusing narrowly on one group out of many different audiences would paint an incomplete picture in understanding status and reputation dynamics. Research on the effects of heterogeneous stakeholders will also contribute to the development of a more generalizable theory of social evaluation and influence (Hiatt & Park, 2013; Pfarrer et al., 2010).

Practical Implications

Although organizations in almost all sectors strive to obtain high social evaluations, those operating in domains in which consumer preferences shift toward environmental sustainability may perceive the attainment of high evaluations to be acute (Bansal & Hoffman, 2012; Delmas, Russo, & Montes-Sancho, 2007; Montiel, 2008). Presumably for this reason, there has been a burgeoning effort of scholars to show whether and how firms actively engage in a variety of sense-giving activities to promote their environmental reputations. This effort has been also connected to a public concern that a firm’s social evaluations are often loosely coupled with its actual environmental performance. This study stands to address such a concern by illuminating when and how the gap between perceived and actual sustainability arises in the domains where social evaluations play a significant role.

In this regard, this study presents practical implications for firms and interested audiences including consumers, environmental activists, and policy makers. First, it enables firms to understand how the importance of high status relative to other forms of social evaluations differs across various conditions taken into account in this study, whether there is an optimal balance between sustainable business and effective communication to stakeholders in order to enhance different types of social evaluations, how an organization strikes the balance, and when such endeavors are most likely to be effective. Answering these questions would have implications that are not only theoretically intriguing but also practically relevant to firm performance and competitive advantage. In a general sense, developing a more complete picture of social evaluations and environmental performance can inform firms in their pursuit of environmentally sustainable development.

Second, our focus on the gap between consumer perceptions of a firm’s reputation and its actual environmental performance enables interested audiences to make an informed assessment regarding whether the firm engages in greenwashing or in genuine action for environmental sustainability. Our results show substantial variation in the extent to which sustainability efforts lead to deserved recognition. When firms suffer from lack of such recognition, they can be advised to engage more proactively in the media for extensive communications about their environmental performance. It should be noted, however, that other firms may enjoy unwarranted reputations—that is, actual performance is low but public awareness is high. Thus, it is important for interested audiences to be particularly aware of the possibility that unjustified recognition may occur. Our study helps detect whether the disconnection between social evaluations and firm action exists and when it is likely to arise.

Footnotes

Authors’ note

Hyeonjin Cha is now affiliated to University of Oregon, Eugene, OR, USA.

Declaration of Conflicting Interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The author(s) disclosed receipt of the following financial support for the research, authorship, and/or publication of this article: This work was supported by the Ministry of Education of the Republic of Korea and the National Research Foundation of Korea (NRF-2017S1A5A2A03069011) and the Ministry of Science and ICT of the Republic of Korea through the Graduate School of Green Growth at KAIST College of Business.

ORCID iD

Sangchan Park

Notes

Author Biographies

Sangchan Park is an assistant professor in the College of Business, Korea Advanced Institute of Science and Technology. He received his PhD from Cornell University. His research explores issues related to organization theory and competitive environmental strategy with a focus on the legitimation of non-legitimate ideas, technologies, and managerial practices in contexts such as renewable energy sectors. He has published in academic journals such as Academy of Management Journal, Organization Science, Work and Occupations, and Energy Policy.

Daegyu Yang is an assistant professor in the School of Management, Kyung Hee University. He received his PhD from Shidler College of Business, University of Hawaii at Manoa. He has published in academic journals such as Academy of Management Journal, Asian Business and Management, Sustainability, and Total Quality Management & Business Excellence. His research focuses on theories of social networks to investigate how organizations are affected by their structural characteristics at micro- and macro-level.

Hyeonjin Cha is a doctoral student of Management at the Lundquist College of Business, University of Oregon. He received his master’s degree in Management Engineering from College of Business at KAIST. His research interests lie in the intersection of organization theory and environmental sustainability, especially the gaps among adoption, implementation, and outcomes of environmental programs.

Seobin Pyeon is a business development analyst of Enel X Korea, establishing new business models in new energy fields for environmental sustainability. She received her master’s degree from the Graduate School of Green Growth at KAIST. Her research interests include energy consumption behavior and business ethics in the areas of smart grid, renewable energy and climate change.

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