How long does the influence of organizational deviance have on innocent firms?

Prior studies of crisis spillovers show that innocent firms suffer from undeserved losses of legitimacy when other members of their industries misbehave. However, how these innocent companies recover their legitimacy remains a mystery. We draw on the crisis-spillover literature and institutional theory to predict how companies recover their legitimacy-that is, what institutional factors influence the duration of crisis spillover. This “guilt by association” can last a long time, but audiences use institutional signals to detect the strength of association between a focal firm and a deviant firm. In the Chinese context, ex-ante characteristics of firms such as no political connection and international market presence make it less likely that audiences will see them as categorically similar to a firm that is responsible for wrongdoing. This in turn helps innocent companies disassociate from deviant firms in their industries, thereby shortening the duration of crisis spillover.