Categories and Organizational Status: The Role of Industry Status in the Response to Organizational Deviance

Extant research in organizational and economic sociology posits that organizations derive status from their prior demonstrations of quality, as well as their affiliations with high-status alters. Yet there are also indications that organizations may acquire status by virtue of their membership in salient social categories that are themselves status valued. In this article, the author explicitly theorizes and measure the concept of categorical status among organizations and test whether it influences the evaluation of organizational actions. More concretely, she develops a measure of industry status and test whether it affects the market reaction to U.S. firms announcing earnings restatements between 2000 and 2009. Results of the empirical analyses indicate that investors react less negatively to earnings restatements announced by firms from higher-status industries, supporting the argument that category status acts as a lens that shapes the extent to which an organization's actions are viewed favorably.