Love, E. Geoffrey, and Matthew Kraatz. "Character, Conformity, or the Bottom Line? How and Why Downsizing Affected Corporate Reputation." Academy of Management Journal, February 2009 (Vol. 52 No. 2).

This complex study formally tests seven hypotheses around the question of how corporate restructurings affect reputation, and what factors impact that dynamic. The first hypothesis consists of three sub-hypotheses, each mapped to a prior theory of corporate reputation. The "core finding" is that downsizing announcements negatively impact corporate reputation, which, in the authors' view "is strongly supportive of the character explanation, according to which audiences highly value trustworthiness and respond negatively to opportunistic acts... Downsizing enjoyed a very high level of symbolic appropriateness within the cultural milieu of analysts and executives, and many prominent figures in this field explicitly advocated it. Nonetheless, members of this field lowered their opinions about the overall quality of the firms that adopted the practice. As our results show, this effect cannot be attributed to downsizings’ observable performance antecedents or consequences. It appears to be largely independent of performance factors."

One key moderating factor is that restructuring announcements that are well-received by the stock market tend to signal less reputational loss than poorly-received ones. "A market reaction to a downsizing that is one standard deviation above the mean (+5.3%) is associated with a ranking loss of only 0.30 [in a reputational survey], whereas a market reaction one standard deviation more negative than the mean(-8.6%) is associated with a much larger ranking loss of 1.11."

Authors' abstract:

The aim of this study is to illuminate reputational change processes and identify the underlying theoretical mechanisms. We draw upon extant literature to develop three distinct explanations for reputational change, respectively emphasizing criteria oforganizational “character,” symbolic conformity, and technical efficacy. We evaluate these explanations by examining the reputational consequences of corporate downsizing. Our results show that downsizing exerted a strong, negative effect on reputation, consistently with the character explanation. However, significant moderation of this negative effect by other factors, including stock market reaction and downsizing’s overall prevalence, indicates the need for a multitheoretical approach to reputational change.