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In this paper, we explore opposing theoretical claims about how organizational reputation affects market reactions to product defects. On the one hand, good reputation could be a disadvantage because expectations about product quality are more likely to be violated by defects in highly reputed products. On the other hand, a good reputation could be an advantage because of strong inertial effects on reputation orderings. We empirically test these competing hypotheses using data on product recalls in the U.S. automobile industry from 1975 to 1999. Our results support for the idea that reputation can be an organizational liability in that highly reputed firms suffer more market penalty as a result of their product recalls. We also propose that the reputational effects are moderated by two important factors: substitutability and generalism/specialism. Our results show that having few substitutes with an equivalent level of reputation, or a focused product identity stemming from specialism, buffers the negative market reactions to product recalls. We conclude with a discussion on the implications of these results for institutional, reputation, and status theories.

Using data on accidents and incidents experienced by U.S. commercial airlines from 1983 to 1997, we investigated variation in firm learning by examining whether firms learn more from errors with heterogeneous or homogeneous causes. We measured learning by a reduction in airline accident and incident rates, while controlling for other factors related to accidents and incidents. Our results show that heterogeneity is generally better for learning, as prior heterogeneity in the causes of errors decreases subsequent accident rates, producing a deeper, broader search for causality than simple explanations like "blame the pilot." The benefits of heterogeneity, however, apply mainly to specialist airlines. Generalist airlines learn, instead, from outside factors such as the experience of others and general improvements in technology. These results suggest a theory of learning across organizational forms: complex forms benefit from simple information, and simple forms benefit from complex information. The implications of our study for learning theories and work on organizational errors are discussed.

To examine the effects of interorganizational network structures on acquisition decisions, we propose a model whereby firms learn by sampling the diverse experiences of their network partners. We tested this model by examining the effect of diversity of network partners' experience on firms' acquisition decisions, using data on acquisition premiums and acquirers' stock market performance from 1986 to 1997. Results show that firms tied to others with heterogeneous prior premium experience tend to pay less for their acquisitions and have better-performing acquisitions than those tied to others with homogeneous experience. Firms also pay lower premiums when their network partners (1) have completed deals of diverse sizes, (2) have unique information, and (3) are themselves of diverse sizes. Firms that have multiplex relationships with their partners receive even more benefit. The results extend prior research on networks and learning by showing that collective network experience affects firms' decision quality.