How the severity gap influences the effect of top actor performance on outcomes following a violation

• Author: John R. Busenbark,Michael D. Pfarrer,Brian P. Miller,Nathan T. Marshall
• Date: 01 December 2019
• Published date: 01 December 2019
• DOI: http://doi.org/10.1002/smj.3064

RESEARCH ARTICLE

How the severity gap influences the effect of top

actor performance on outcomes following a violation

John R. Busenbark

1†

| Nathan T. Marshall

2†

| Brian P. Miller

3†

|

Michael D. Pfarrer

4†

1

Mendoza College of Business, University of Notre Dame, Notre Dame, Indiana

2

Leeds School of Business, University of Colorado Boulder, Boulder, Colorado

3

Kelley School of Business, Indiana University, Bloomington, Indiana

4

Terry College of Business, University of Georgia, Athens, Georgia

Correspondence

John R. Busenbark, Mendoza College of

Business, University of Notre Dame,

351 Mendoza College of Business, Notre

Dame, IN.

Email: jbusenba@nd.edu

Abstract

Research Summary: Violation severity represents an

important contextual factor in explaining the extent to

which top actor performance is a benefit or burden follow-

ing a negative event. Research often conflates how

observers perceive an event with its objective severity,

however, while ignoring the potential divergence between

both types. We therefore introduce the severity gap, which

reflects the degree to which perceived and objective viola-

tion severity diverge, and we theorize about how it informs

the degree to which top actor performance offers benefits

or burdens for these actors. We hypothesize and find that

internal stakeholders shield strong performing top actors

when the severity gap is high, but that performance is less

salient to external stakeholders who distance themselves

from these top actors.

Managerial Summary: Organizations embroiled in viola-

tions are often subject to formal assessments of the sever-

ity of the event as well as the court of public opinion. Yet

researchers have largely conceptualized objective and per-

ceived violation severity as mirrors of each another. We

question if this captures what actually unfolds in the

†

All authors contributed equally to this study.

Received: 20 February 2018 Revised: 28 May 2019 Accepted: 6 June 2019 Published on: 5 August 2019

DOI: 10.1002/smj.3064

2078 © 2019 John Wiley & Sons, Ltd. Strat Mgmt J. 2019;40:2078–2104.wileyonlinelibrary.com/journal/smj

marketplace, particularly given the myriad examples of

when violations resonate more strongly with observers

than the objective severity would suggest, or vice versa.

We examine how the gap between perceived and objective

violation severity influences how much insiders and out-

siders are concerned with top actor performance when con-

sidering which outcomes top actors encounter after the

negative event. Our results suggest that insiders shield top

performers as the severity gap increases, but that outsiders

remain increasingly skeptical.

KEYWORDS

executive dismissal and labor markets, executive performance,

organizational violations, severity gap, social perceptions

1|INTRODUCTION

Scholars have devoted considerable attention to examining which characteristics of top actors or

firms influence outcomes following a violation (Arthaud-Day, Certo, Dalton, & Dalton, 2006;

Wiersema & Zhang, 2013; Zavyalova, Pfarrer, Reger, & Hubbard, 2016). By and large, this literature

focuses on how the performance of the firm or its top actors—or perceptions of such performance—

impacts the extent to which top actors encounter unfavorable outcomes (Graffin, Bundy, Porac,

Wade, & Quinn, 2013; Wiersema & Zhang, 2013; Zavyalova et al., 2016). Despite the important

developments from this research, the strategic management literature remains unsettled as to the

extent to which performance offers a benefit or burden for top actors following a violation (Lange,

Lee, & Dai, 2011; Zavyalova et al., 2016). Recent scholarship has thus focused on the idea that the

extent to which performance is helpful or harmful for top actors is contingent on contextual factors,

such as the severity of the violation itself (Bundy & Pfarrer, 2015; Bundy, Pfarrer, Short, & Coombs,

2017; Zavyalova et al., 2016).

Surprisingly, though, research in the area has yet to fully embrace theory about the nuances of

violation severity. This limited progress is concerning given that the relevance of social perceptions

and the degree to which an event may resonate with different stakeholders continues to gain impor-

tance (Etter, Ravasi, & Colleoni, 2019; Zavyalova, Pfarrer, & Reger, 2017). Research is the area has

instead equivocated perceptions of violation severity and objective magnitude, and scholars have

predicted that more severe violations are associated with more unfavorable outcomes for top actors

regardless of how severity is conceptualized (Zavyalova, Pfarrer, Reger, & Shapiro, 2012). We ques-

tion, however, if this perspective paints a comprehensive enough picture of the role violation severity

plays in how top-actor performance influences outcomes following a negative event.

In line with our query, some recent research has begun to suggest that violations that seem “objec-

tively”lower in magnitude may not be perceived as such (and vice versa) (Bundy et al., 2017;

Durand, Hawn, & Ioannou, 2019). Even more, emerging work in the social perceptions literature

argues that a violation may resonate quite differently for individuals affiliated or unaffiliated with the

organization (Eury, Kreiner, Trevino, & Gioia, 2018; Zavyalova et al., 2016). Taken together, ideas

BUSENBARK ET AL.2079