Ratings, Reactivity, and the Paradox of Recognising Responsibility

We examine why organisations may at times decrease their performance after receiving a positive rating. In contrast to the prevailing assumption that organisations will strive for favourable ratings to achieve reputational benefits, we argue that when the values captured by the rating are perceived as incompatible with a dominant logic. it may lead organisations to strategically reduce their performance on the rated dimension. Utilising a difference-in-differences design, we examine how companies responded to being rated and recognised as a charitable organisation, an evaluation that we maintain was generally perceived as incompatible with the dominant logic of shareholder maximisation during the early 1990s. Our results suggest that rated companies decreased philanthropic contributions more after being rated as a generous firm relative to firms that were rated but not recognised, primarily as an anticipatory impression management tactic. We also found this reaction to be amplified and attenuated by factors that increased or decreased the saliency of the perceived incompatibility between the philanthropy rating and the dominant shareholder logic. These findings provide insights for scholarship on how organisations react to external evaluations, and raise important questions for scholars and practitioners interested in the effectiveness of evaluation metrics in shaping organisational performance.