True exogenous shock or just a scapegoat

Abstract

Purpose Sensemaking models generally lack an objective determinant to distinguish between CEO fault and changes in systematic risk caused by exogenous negative shocks like a banking crisis. The interdisciplinary approach of this paper combines attribution theory with econometric time series analyses to provide an objective measure of exogeneity and persistence of a negative shock to an organization. The purpose of this paper is to address the exploratory research question, of how scapegoating by managers can be avoided by the use of an objective and empirical measurement and if the recent financial crisis can be seen as an exogenous shock to manufacturing firms. Design/methodology/approach By testing for stationarity with a structural break with an econometric time series analysis, the model helps to reduce agency costs during organizational crisis by effectively determining crisis causation and avoid scapegoating by managers. Findings By combining the sensemaking models of Haleblian and Rajagopalan (2006), Staw (1980), and Weick (1988), an integrated model of sensemaking in performance crises under the specific context of simultaneously occurring external crises is provided. By applying the authors approach the results suggest that the financial crisis of 2008/2009 has true exogenous adverse effects on US manufacturing firms. Originality/value The interdisciplinary approach encourages the integration of econometric time series analysis as an objective determinant in sense making models.