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In markets, individuals use three main evaluation modes to categorize and subsequently value organizations based on received organizational cues: prototype-based, exemplar-based, and goal-based evaluation. Starting with the premise that individual audience members use prototype-based evaluation as a default evaluation mode when receiving expected organizational cues, this paper derives a theory that connects unexpected organizational cues with an individual audience member's likelihood of switching from prototype-based evaluation to either exemplar-based or goal-based evaluation. Individual audience members' switches between modes, which we refer to as evaluation-mode heterogeneity, lead to changes in their valuation of typical organizations relative to atypical organizations. Our proposed theory has important consequences for research on valuation in markets accounting for apparently conflicting findings in prior studies, and on optimal distinctiveness. [ABSTRACT FROM AUTHOR]

In this editorial, we identify three approaches to corporate purpose that shed light on distinctive aspects of corporate purpose and organizational life. The statement-centric approach focuses on how purpose can send (or not) credible signals to specific audiences. The experience-based approach highlights the heterogeneity in firm members' perceptions and understandings of corporate purpose. The decision-making approach proposes that corporate purpose alters decision-making within firms in predictable ways. This editorial contributes ideas for future empirical research. We believe current approaches to corporate purpose should both acknowledge their unique contributions and build on their methodological strengths in order to develop a meaningful understanding of organizations and provide concrete evidence of the impact of corporate purpose on organizational outcomes. [ABSTRACT FROM AUTHOR]

Corporate sustainability has gone mainstream, and many companies have taken meaningful steps to improve their own environmental performance. But while corporate political actions such as lobbying can have a greater impact on environmental quality, they are ignored in most current sustainability metrics. It is time for these metrics to be expanded to critically assess firms based on the sustainability impacts of their public policy positions. To enable such assessments, firms must become as transparent about their corporate political responsibility (CPR) as their corporate social responsibility (CSR). For their part, rating systems must demand such information from firms and include evaluations of corporate political activity in their assessments of corporate environmental responsibility.

Organizations need to both differentiate themselves while conforming to their audiences' expectations. To meet this demand, organizations may span different categories. However, valuing spanners is challenging for audiences. We contend that spanners' valuation depends on category nesting, as the congruence of informational cues varies between basic categories and subcategories. Furthermore, we expect that more expert audiences find spanners to be more congruent (and hence, more valuable) at a subordinate level than at a basic level of categorization. We test our hypotheses using a mixed-methods design in the context of venture capital investments. We analyze observational data on more than 29,000 venture capital deals and develop two experimental studies. Our findings support our hypotheses that subcategory spanning lowers valuation, and that this effect is attenuated as investors' expertise increases. Our experimental studies further show that congruence is a causal mechanism explaining these effects. Our findings have important implications for research on organizational conformity and optimal distinctiveness, categorization in markets from an information processing perspective, and the impact of expertise on valuation. [ABSTRACT FROM AUTHOR]

Raters of corporations play an important role in assessing domains ranging from sustainability to corporate governance to best workplaces. Scholars increasingly rely on these ratings to test theories about corporate social responsibility (CSR), corporate governance and the influence of stakeholders. Though these raters frequently develop sophisticated methodologies, we find they often diverge in their ratings of the same firm, creating uncertainty for managers and stakeholders, and also posing challenges for researchers. We document the surprising lack of convergence of social ratings for the first time using six well-established socially responsible investing (SRI) raters, with comparisons of overlap, correlations, and regression analysis. Our results suggest that scholars should interpret empirical results with caution and at least use multiple ratings schemes in studies of CSR and governance.

Research Summary: We examine whether impact investing is more effective in fostering business venture success and social impact when investments are directed toward ventures in disadvantaged urban areas compared to similar investments directed toward ventures outside these areas. We explore this question in the context of loans made to business ventures in French "banlieues" versus "non‐banlieues." We find that, following the loan issuance, banlieue ventures achieve greater improvements in financial performance and greater social impact in terms of the creation of local employment opportunities, quality jobs, and gender‐equitable jobs. This suggests that impact investors are able to contract with ventures of greater unrealized potential in banlieues, as banlieue ventures tend to be discriminated on the traditional loan market. The latter is corroborated in a controlled lab experiment. Managerial Summary: We shed light on the unrealized potential of business ventures in economically disadvantaged urban areas, known as "banlieues" in France. Our results show that, after receiving loans from an impact investor, banlieue ventures achieve greater financial performance compared to non‐banlieue ventures. What is more, banlieue ventures achieve greater social impact by creating more jobs that benefit the local community. Why are traditional investors missing out on these opportunities? Our results point toward discrimination of banlieue ventures on the traditional loan market. This is confirmed in a controlled lab experiment, in which participants are less likely to approve loans to banlieue ventures compared to identical non‐banlieue ventures. These insights can guide managers and investors seeking sustainable, socially impactful, and financially viable investment opportunities. [ABSTRACT FROM AUTHOR]

We develop and test a theory of howunintended audiences create reaction costs for firms that use corporate social responsibility (CSR) as a signal. We introduce and define reaction costs as costs that signal senders incur when unintended audiences react negatively to a true signal that was intended for another audience. We argue that activist hedge funds--an unintended audience--treat CSR as a signal that firms have wasteful intentions and capabilities, which prevent firms from maximizing shareholder value in the short term. On that basis, we hypothesize that activist hedge funds are more likely to target firms with higher levels of CSR, thus imposing reaction costs on these firms. We further argue that this relationship is weaker when firms operate in industries with high levels of CSR, and strongerwhen firms' financial communication is vague. Using data on activist hedge fund campaigns in the U.S. between 2000 and 2016, we find supporting results. Our study shows that CSR signals may be costlier than previously assumed and contributes to research on CSR, signaling, and corporate governance. [ABSTRACT FROM AUTHOR]

We explore the way validity and propriety cues contribute to legitimacy judgments about a practice and to explaining whether the subunit of a large firm increases or decreases the implementation of this practice. Empirically, we examine the extent to which 65 subsidiaries of a multinational enterprise implemented three corporate social responsibility practices. Adopting a set-theoretic approach, we find that both validity and propriety cues are extremely relevant to the understanding of subunits' implementation of practices over time. The endorsement of a practice in a subunit's environment plays a particularly crucial role in the extent to which it is implemented, relative to authorization by the parent firm. Furthermore, subunits strongly rely on the active evaluation of the practice's propriety, such that the consonance between the two propriety dimensions (strategic importance and value compatibility) is central to implementation increase, while dissonance between them can favor implementation decrease. By advancing our understanding of legitimacy judgment formation and practice implementation patterns, our study enriches explanations of organizational conformity and decoupling, and contributes to our understanding of how firms respond to multiple institutional demands. [ABSTRACT FROM AUTHOR]