Returning the Favor: Investor Reactions to Organizational Revenge Behavior

Abstract

Despite increasing evidence of revenge in the business world, management research has paid little attention to organizational revenge behavior or how investors respond to it. I draw on justice theory and uncertainty management theory to examine whether organizational revenge behavior influences investor response and investigate how the characteristics of the revenge behavior, media sentiment, and firm reputation shape market reactions. Specifically, I examine whether CEO revenge behavior and individual revenge target influence investor response, and whether revenge severity, media sentiment, financial reputation, and corporate social responsibility (CSR) reputation moderate these relationships. I employ an event study methodology using a novel archival dataset of 806 firm-initiated defamation lawsuits involving publicly traded U.S. firms between 2010 and 2024 to estimate cumulative abnormal returns (CARs) surrounding the filing of litigation. The results provide limited support for the hypothesized relationships. Neither CEO revenge behavior nor investor revenge target was found to generate significant market reactions across the examined event windows. However, several important contingent effects emerged. Revenge severity strengthened the negative relationship between individual revenge target and investor response. Both media sentiment and CSR reputation weakened the negative relationship between CEO revenge behavior and investor response. The findings suggest that investors rely on the context surrounding litigation to interpret organizational revenge behavior. The implications of my findings for justice theory, uncertainty management theory, and strategic management research are discussed.