The risk of being ranked: Investor response to marginal inclusion on the 100 Best Corporate Citizens list

Research Summary Despite the proliferation of lists and rankings that recognize firms for superior performance, empirical studies have been limited in their ability to causally evaluate how inclusion for the marginal firm influences shareholder value. We address this limitation by examining how investors responded to firms that were barely included or excluded from the 100 Best Corporate Citizens list. Contrary to prevailing theoretical expectations, our findings indicate that marginal firms that were included in the ranking experienced negative abnormal returns compared to marginal firms that were excluded. We discuss the theoretical implications of these findings and how they inspire future research questions for scholarship on rankings and status. We also discuss implications for managers that question whether and when being ranked results in financial benefits or liabilities. Managerial Summary Because being ranked is generally seen as an important strategic objective for companies, managers must carefully consider how much attention and resources to allocate toward this pursuit. Although existing research suggests that being ranked can be beneficial, we have a limited understanding about whether barely making a ranked list is worth the effort. We provide new insights for managers by showing that investors not only respond negatively to marginal inclusion on a ranking but also provide suggestions for how companies might counteract this effect. Specifically, our results suggest that making consistent, focused investments that are relevant to external stakeholders may buffer organizations from the potential negative effects of marginal inclusion on a ranking. These insights may also inspire managers to reconsider their firms' commitments to being ranked.