On the effect of trust repair responses in crisis: Evidence from Policy Declarations

The emergence of trust violations in crisis is apparent. In this article, I link signaling theory and impression management perspectives to explain how type and content of failure responses affect market behavior. In... [ view full abstract ]

The emergence of trust violations in crisis is apparent. In this article, I link signaling theory and impression management perspectives to explain how type and content of failure responses affect market behavior. In particular, I hypothesize that the effectiveness of trust repair responses is related to the type of failure (1), that these responses interact (2), however, oppose their relationship to be further additive (3). I model the content of responses by drawing on attribution theory and concepts about the bilateral mechanisms for trust repair. To test the hypotheses market behavior is captured by the abnormal returns of a financial model following a series of post-crisis policy declarations. Selection and typing of crises follows an event study methodology. Sampling the major corporate crises from the last five decades, derived conclusions speak to the interest of market participants, regulators and corporate management.