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Trust Erosion During Industry-Wide Crises: The Central Role of Consumer Legitimacy Judgement

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Abstract

Widespread unethical corporate misconduct in an industry triggers industry-wide crises. This research investigates how industry misconduct affects consumers’ trust in the industry, by incorporating insights from a micro-level psychological aspect of institutions. The conceptual framework proposes that consumer legitimacy judgement lies at the core of industry trust, following an industry-wide crisis. The results demonstrate that perception of normalisation of misconduct (PNM) affects industry trust through consumer legitimacy judgement (CLJ) (Study 1). Moreover, the PNM-CLJ-industry trust relationship is stronger during industry-wide crises compared with crises that involve only one firm (Study 2), and this relationship is not dependent on the frequency of crises (Study 3). This research contributes to the knowledge of product-harm crisis by deepening understanding of the trust erosion mechanism during industry-wide crises, with a focus on legitimacy judgement. The findings have implications for prevention of industry-wide crises and for boosting ethically desirable business activities.

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Funding

The authors gratefully acknowledge grants from Research Grant Council of Hong Kong SAR (CityU 11502218), and National Natural Science Foundation of China (No. 71672164), for financial support.

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Authors and Affiliations

  1. Department of Marketing, Macquarie University, 3 Management Drive, Sydney, NSW, 2109, Australia

    Shijiao Chen

  2. Department of Management, University of Otago, 60 Clyde Street, Dunedin, 9016, New Zealand

    Jing A. Zhang

  3. School of Marketing and International Business, Victoria University of Wellington, 23 Lambton Quay, Wellington, 6011, New Zealand

    Hongzhi Gao

  4. Department of Marketing, City University of Hong Kong, Tat Chee Ave, Kowloon, Hong Kong

    Zhilin Yang

  5. Department of Marketing, University of Otago, 60 Clyde Street, Dunedin, 9016, New Zealand

    Damien Mather

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Correspondence to Zhilin Yang.

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Appendices

Appendix 1: Survey Scenarios

  1. 1.

    Scenario description in Study 1

    According to a reliable media report on October 26, 2016, many Chinese dairy firms were found to have food safety management problems. The reported dairy firms included Company Y (in order to avoid legal disputes, we use “Y” to replace the real brand name in our research). Y has relatively high brand visibility in China. The reporters conducted an in-depth investigation and found that Company Y did not conduct some food safety tests required by the state, and there were cases where the products were shipped directly without passing relevant tests. These tests assess levels of nitrates, selenium and other substances. If people consume food products with an excess amount of the substances specified by the state, they may have negative physiological reactions such as dizziness, vomiting, and so on. Severe cases may cause acute poisoning or even be life-threatening

    In addition to Company Y, the reporters found that many other Chinese dairy firms have similar food safety management issues

    At present, the milk produced by the aforementioned companies (including Company Y) has been sold in your provincial region

  2. 2.

    Scenario descriptions in Study 2

    1. (A)

      Scenario description for an industry-wide crisis (same as Study 1)

      According to a reliable media report on October 26, 2016, many Chinese dairy firms were found to have food safety management problems. The reported dairy firms included Company Y (in order to avoid legal disputes, we use “Y” to replace the real brand name in our research). Y has relatively high brand visibility in China. The reporters conducted an in-depth investigation and found that Company Y did not conduct some food safety tests required by the state, and there were cases where the products were shipped directly without passing relevant tests. These tests assess levels of nitrates, selenium and other substances. If people consume food products with an excess amount of the substances specified by the state, they may have negative physiological reactions such as dizziness, vomiting, and so on. Severe cases may cause acute poisoning or even be life-threatening

      In addition to Company Y, the reporters found that many other Chinese dairy firms have similar food safety management issues

      At present, the milk produced by the aforementioned companies (including Company Y) has been sold in your provincial region

    2. (B)

      Scenario description for a non-industry-wide crisis

      According to a reliable media report on October 26, 2016, a Chinese dairy firm was found to have food safety management problems. The reported dairy firm is Company Y (in order to avoid legal disputes, we use “Y” to replace the real brand name in our research). Y has relatively high brand visibility in China. The reporters conducted an in-depth investigation and found that Company Y did not conduct some food safety tests required by the state, and there were cases where the products were shipped directly without passing relevant tests. These tests assess levels of nitrates, selenium and other substances. If people consume food products with an excess amount of the substances specified by the state, they may have negative physiological reactions such as dizziness, vomiting, and so on. Severe cases may cause acute poisoning or even be life-threatening

      At present, the milk produced by Company Y has been sold in your provincial region

  3. 3.

    Scenario descriptions in Study 3

    1. (A)

      Scenario description for an industry with a high level of crisis frequency (the Chinese dairy industry). This description is the same as Study 1 and Study 2 (A)

      According to a reliable media report on October 26, 2016, many Chinese dairy firms were found to have food safety management problems. The reported dairy firms included Company Y (in order to avoid legal disputes, we use “Y” to replace the real brand name in our research). Y has relatively high brand visibility in China. The reporters conducted an in-depth investigation and found that Company Y did not conduct some food safety tests required by the state, and there were cases where the products were shipped directly without passing relevant tests. These tests assess levels of nitrates, selenium and other substances. If people consume food products with an excess amount of the substances specified by the state, they may have negative physiological reactions such as dizziness, vomiting, and so on. Severe cases may cause acute poisoning or even be life-threatening

      In addition to Company Y, the reporters found that many other Chinese dairy firms have similar food safety management issues

      At present, the milk produced by the aforementioned companies (including Company Y) has been sold in your provincial region

    2. (B)

      Scenario description for an industry with a low level of crisis frequency (the Chinese soymilk industry)

      According to a reliable media report on October 26, 2016, many Chinese soymilk firms were found to have food safety management problems. The reported soymilk firms included Company Y (in order to avoid legal disputes, we use “Y” to replace the real brand name in our research). Y has relatively high brand visibility in China. The reporters conducted an in-depth investigation and found that Company Y did not conduct some food safety tests required by the state, and there were cases where the products were shipped directly without passing relevant tests. These tests assess levels of nitrates, selenium and other substances. If people consume food products with an excess amount of the substances specified by the state, they may have negative physiological reactions such as dizziness, vomiting, and so on. Severe cases may cause acute poisoning or even be life-threatening

      In addition to Company Y, the reporters found that many other Chinese soymilk firms have similar food safety management issues

      At present, the soymilk produced by the aforementioned companies (including Company Y) has been sold in your provincial region

Appendix 2

See Table 10.

Table 10 Factor loadings
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Chen, S., Zhang, J.A., Gao, H. et al. Trust Erosion During Industry-Wide Crises: The Central Role of Consumer Legitimacy Judgement. J Bus Ethics 175, 95–116 (2022). https://doi.org/10.1007/s10551-020-04588-0

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