When the Dust Settles: The Consequences of Scandals for Organizational Competition

Recent works have documented the dark side of scandals, revealing how they spread, contaminate associated organizations, and taint the perception of entire fields. We complement this line of work by exploring how scandals durably affect competition within a field, translating into relative advantages for certain organizations over others. First, scandals may benefit organizations that provide a close substitute to the offerings of the implicated organization. Second, scandals pave the way for moralizing discourses and practices, shake taken-for-granted assumptions about the conduct of organizations, and result in a shift in the criteria used to evaluate organizations within the field. Our arguments suggest that organizations whose offerings are most similar to those of the implicated organization, yet perceived as enforcing stricter standards of conduct, are likely to benefit the most from a scandal. We find support for these arguments in a county-level study of membership in the Catholic Church and sixteen other Christian denominations in the United States in the wake of a series of sex abuse cases perpetrated by Catholic clergy between 1971 and 2000. This study contributes to our understanding of the competitive effects of scandals on organizations, and carries important implications for the management of organizations in scandal-stricken fields.