Riding a Tiger without Being Eaten - RePub - Erasmus Universiteit ...

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surface. A celebrity CEO receives increased attention and hence any gaps between
actual and expected firm performance are magnified (Ketchen et al., 2008). In
particular, unethical or illegal behaviour by a celebrity CEO provides the company
with added negative media attention, further highlighting damage to the corporate
reputation.
1.4.5 Factors mitigating tHe imPact oF restatements
Handling the crisis in a proper way will mitigate the negative effects of a financial
restatement. For example, in a study by Knight and Pretty (1999), it was shown that
companies experiencing man-made catastrophes could be divided into two groups:
the ‘recoverers,’ whose stock after an initial dip ultimately rose 10 per cent; and the
‘non-recoverers’ whose stock dropped by 15 per cent. It seems likely that the amount
of the impact is affected by the steps a company takes to handle the crisis (Van Riel
& Fombrun, 2007). As Knight and Pretty (1999) explained it: these catastrophes offer
an opportunity for management to demonstrate their talent in dealing with difficult
circumstances.
In order to shield the CEO’s and the company’s reputation during a restatement
crisis, it is important that a CEO engages in damage control. This is a factor that Wade
et al. (2008) label ‘social astuteness’ – being able to understand perceptions and
respond accordingly. A good example of this is the decision of CEO James Burke of
Johnson & Johnson to remove Tylenol from the store shelves after the 1982 product
tampering scare. Not only did the decision positively reflect on Burke, it also restored
the corporate reputation of Johnson & Johnson as a supplier of safe products. In
the empirical parts of this thesis, we will take a close look at the nature of these
reputational remediation actions.