J Bus Ethics (2013) 117:111–121
DOI 10.1007/s10551-012-1512-2
Negative Publicity Effect of the Business Founder’s Unethical
Behavior on Corporate Image: Evidence from China
Dong-Hong Zhu • Ya-Ping Chang
Received: 15 March 2012 / Accepted: 21 September 2012 / Published online: 2 October 2012
Ó Springer Science+Business Media Dordrecht 2012
Abstract The unethical behavior of a business founder
often leads to negative publicity which substantially affects
positive corporate image. The amount of negative publicity
relating to business founders’ unethical behavior is on the
rise in the age of online social media in China. Based on
the stimulus–response theory and balance theory, this paper
developed a theoretical model to examine how negative
publicity about a business founder’s unethical behavior
affects corporate image. The proposed model was tested by
the partial least squares technique. Results show that per-
ceived severity, publicity intensity and recovery perfor-
mance are predictors of corporate image: perceived
severity has a negative impact on positive corporate image;
publicity intensity and recovery performance have positive
impacts on positive corporate image; and founder image
mediates the relationships between the three predictors and
corporate image. Moreover, initial consumer impression of
business founders has a positive impact on positive cor-
porate image.
Keywords Business founder
Corporate image

Entrepreneurs
Entrepreneurship and ethics

Negative publicity
Unethical behavior
D.-H. Zhu
School of Management, Huazhong University of Science &
Technology, Room 642, 1037 Luoyu Road, Wuhan, China
Y.-P. Chang (&)
School of Management, Huazhong University of Science &
Technology, Room 615, 1037 Luoyu Road, Wuhan, China
e-mail: changyphust@126.com
Introduction
Over the past several decades, the ethics of entrepreneur-
ship has attracted increasing attention (Hannafey 2003;
Harris et al. 2009). Earlier studies examine the ethical
attitudes of entrepreneurs regarding problematic behavior
(Hornsby et al. 1994; Reidenbach and Robin 1993), as well
as the difference between entrepreneurs and non-entrepre-
neurs with respect to ethics (Humphreys et al. 1993;
Solymossy and Masters 2002; Teal and Carroll 1999). The
more recent literature devotes attention to the ethical
decision making of entrepreneurs (Buchholz and Rosenthal
2005; Chau and Siu 2000), ethical dilemmas in entrepre-
neurship (Kuratko and Goldsby 2004; Payne and Joyner
2006), ethics of technological change and innovation
(Brenkert 2009; Hall and Rosson 2006), the formation of
ethical infrastructure in new ventures (Schminke et al.
2005), the stakeholder theory of entrepreneurship (Dew
and Sarasvathy 2007), and the relationship between social
responsibility philosophies and practices of entrepreneurs
(Peterson and Jun 2009).
Entrepreneurs live under media and public scrutiny
during the development of their ventures (Kuratko and
Goldsby 2004). The amount of negative publicity relating
to business founders’ unethical behaviors is on the rise in
the age of online social media. Hundreds of such cases
have occurred in China, including the stock price manip-
ulation case of Huang Guangyu and the ‘‘contribution
door’’ event of Wang Shi. Business founders are associated
with the companies they started; thus, they may be actively
or passively viewed by consumers as endorsers of their
companies. When business founders behave unethically,
questions arise regarding how their misbehavior can affect
their companies and how the effects will be manifested.
Previous studies mainly focus on the ethical problems of
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entrepreneurs in the pursuit of entrepreneurial activity.
However, the effect of business founders’ unethical
behaviors on their companies has been largely slighted by
the academic literature.
In addition, Hunter (2010) emphasizes that the emer-
gence of celebrity entrepreneurs as business founders and
managers who are involved in the ventures is an important
phenomenon that has to be recognized by scholars. A
business founder, as opposed to a manager, starts a com-
pany, shapes corporate culture, and places importance on
values, not just on earning profits (Fassin et al. 2011).
Therefore, business founders are a special kind of entre-
preneur endorser who must be exclusively studied.
Business founders may be viewed by consumers as
endorsers of their companies. Therefore, the current study
refers to works relevant to the field of endorsement. Pre-
vious studies show that negative information has the most
influence on celebrity endorser effectiveness (Amos et al.
2008) and that positive-information publicity of endorsers
has received considerable attention (Money et al. 2006).
However, only a few studies have focused on the negative
side of endorsers, and no unified conclusion has been
reached. For example, Bailey (2007) finds that a public
scandal of a celebrity brand endorser has very marginal
effects on brand image. However, Amos et al. (2008)
propose that negative information about a celebrity
endorser can put the image of a firm at risk. Städtler (2011)
highlights that the subject of negative-information public-
ity about endorsers requires further study. That is, knowl-
edge on the effect of the unethical behavior of business
founders on their companies is very limited.
Negative information, as opposed to positive informa-
tion, attracts more attention (Fiske 1980; Romeo 1991).
The number of negative publicity incidents involving
business founders’ unethical behaviors is increasing in the
age of online social media. Public relations as well as
marketing are the major external functions of the firm,
because it is important to satisfy outside groups (Kotler and
Mindak 1978). Therefore, examining the effects of nega-
tive publicity about business founders’ unethical behavior
on their companies is necessary. Previous studies show that
corporate image is often threatened by negative informa-
tion (Dean 2004). Positive corporate image is closely
related to a company’s reputation and gives the company a
distinct competitive advantage (Fombrun 1996). In addi-
tion, what negatives exist in the corporate image and what
factors cause the negative impression are important public
relations problems for companies (Kotler and Mindak
1978). Therefore, the current study develops a research
model to measure how negative publicity about business
founders’ unethical behaviors affects their respective cor-
porate image. The findings have implications for business
founders to realize the consequences of their unethical
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D.-H. Zhu, Y.-P. Chang
behaviors and for companies to effectively manage their
relations with outside groups.
Conceptual Framework and Hypotheses
Conceptual Framework
According to the stimulus–response (S–R) theory, the
complexity of human behavior can be broken down into
two parts, the stimulus (S) and the response (R). Human
behavior is subject to stimulation. When a person experi-
ences a S, he will respond to that S, thus producing
behavior. Lii and Lee (2011) use the extended S–R theory
to test consumer response to corporate social responsibility
(CSR). Negative publicity about a business founder’s
unethical behavior can be regarded as a S, and consumer
opinion on the image of the founder and the company can
be regarded as the consumer response.
Previous studies suggest that a variety of factors may
affect consumer reactions to negative publicity (Weinberger
and Lepkowska-White 2000). The factors include the sour-
ces of negative information, severity of the problem, credi-
bility of the information channels, and culpability of the
responsible company (Weinberger 1986; Romeo et al.
1994). The factors can be categorized as follows: source,
event, media, and company. In the current study, the source
of negative publicity is the business founder. Therefore, this
study proposes that the stimuli related to the negative pub-
licity about business founders’ unethical behaviors primarily
comes from the event, media, and the company. First, for the
event, the severity of the business founders’ unethical inci-
dent may stimulate consumer response. Second, the media
and the public may scrutinize unethical events, and public
opinion may stimulate consumer response. The prevalence
of online social media such as blogs, forums, Wikis, and
social networking sites provides convenient ways for people
to discuss events (Chang and Zhu 2011; Chen et al. 2011).
The phenomenon described by the statement, ‘‘for evil news
rides fast, while good news baits later’’ has become more
common in the age of online social media. Likewise, the
influence of word-of-mouth communication facilitated by
online social media cannot be overlooked because the say-
ing-is-believing effect has been found to be a highly reliable
phenomenon (Higgins et al. 2007). Third, as crude rela-
tionships develop between the business founders and the
companies they started, the negative spillover effects of
unethical events may require companies to take remedial
actions to reduce negative influence. How companies handle
negative publicity about their founders’ unethical behaviors
may also stimulate consumer response.
Therefore, this study focuses on three factors to examine
the stimuli from the negative publicity of business
Founder’s Unethical Behavior and Corporate Image 113

Perceived severity
Langmeyer and Shank (1993) report that negative opinion
H2a about a celebrity results in negative perception about any
nonprofit agency the celebrity endorses. Business founders
H2b Founder image
are the starters of companies, and thus, they may be gen-
H3a
Publicity intensity H1 erally viewed by consumers as credible sources of infor-
H3b
mation about their companies. According to the balance
Corporate image theory, negative images of business founders may yield a
H4a
negative perception that consumers have on their compa-
H4b
Recovery performance
nies. The current study proposes that the image of a busi-
Age
Gender ness founder has a positive effect on corporate image. The
Initial impression hypothesis is as follows:

Fig. 1 Research model H1 Founder image has a significant influence on corpo-

rate image.
founders’ unethical behaviors. First is perceived severity, a
Perceived Severity, Founder Image, and Corporate Image
construct that refers to the severity of the unethical
behavior involving the business founder. Second is pub-
One important factor consistently overlooked is the
licity intensity, a construct that refers to the intensity of the
severity of negative information (Zhang and Taylor 2009).
media and the public attention directed toward the negative
Business founders are central to their own unethical
publicity of the business founder’s unethical behavior.
behaviors. Therefore, the present study proposes that the
Third is recovery performance, a construct that refers to the
perceived severity of negative publicity about a business
effect of remedial actions taken by the company.
founder’s unethical behavior has a negative effect on the
Based on the balance theory, this study proposes that
positive image of the founder.
consumer responses have two aspects: founder image and
Given that negative publicity has a negative impact on
corporate image. The balance theory conceptualizes the
corporate image (Dean 2004; Weinberger and Lepkowska-
consistency motive as a drive toward psychological balance
White 2000), the present study proposes that the perceived
(Heider 1946). In particular, it explains how people tend to
severity of negative publicity about a business founder’s
maintain consistency in patterns of their liking and disliking
unethical behavior has a negative effect on the positive
of one another and of inanimate objects. When patterns of
image of the company.
liking and disliking become unbalanced, structures become
Based on the balance theory, consumers’ negative per-
unstable and pressures to restore the balance emerge
ception of the image of a business founder may result in
(Munroe 2007). Parker and Fink (2010) find the balance
their negative perception of the company, which may
theory helpful in explaining the relationship between the
suggest that perceived severity affects corporate image
identification level of fans with a sports team and their atti-
through the founder image. Therefore, this study proposes
tudes toward the team sponsor. Based on the balance theory,
that founder image is a mediator between perceived
Jones et al. (2011) find that transgressions in extra-role
severity and corporate image.
relationships between service employees and customers
The hypotheses are as follows:
damage the relationship between customers and service
firms. In the context of negative publicity about a business H2a Perceived severity of negative publicity about a
founder’s unethical behavior, if a consumer has a negative business founder’s unethical behavior has a significant
opinion on the image of the business founder, to achieve influence on positive founder image.
psychological balance, the consumer will tend to have a
H2b Perceived severity of negative publicity about a
negative opinion on the image of the company started by the
business founder’s unethical behavior has a significant
business founder. Therefore, the current study proposes that
influence on positive corporate image.
consumer response considers founder image and corporate
image as two aspects. Figure 1 presents the research model. H2c Founder image is a mediator between perceived
severity and corporate image.
Hypotheses
Publicity Intensity, Founder Image, and Corporate Image
Founder Image and Corporate Image
In recent years, media attention to and public interest in
According to Amos et al. (2008), a negative celebrity corporate affairs have increased (Dye 1997). Publicity is
image can transfer to the endorsed product or brand. considered a relatively credible channel of information,

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and therefore, has a great influence on consumers (Bond
and Kirshenbaum 1998). With the development of network
technology, the appearance of online social media provides
more convenient and rapid approaches for the media and
the public to pay attention to and diffuse events. Colliander
and Dahlen (2011) find that social digital media (blogs)
generate higher brand attitudes and purchase intentions
than ‘‘traditional’’ digital media (online magazines). Public
opinion has become an important phenomenon in the age
of online social media, which may strengthen consumer
responses to negative events.
Lin et al. (2011) report that perceived negative publicity is
negatively related to trust and affective identification toward
companies during product-harm crises. As the public may
associate the unethical behavior of business founders with
the founders themselves and their companies, the present
study proposes that the publicity intensity of the unethical
behavior of business founders negatively affects positive
founder and corporate images. Furthermore, according to the
balance theory, this study proposes that founder image is a
mediator between publicity intensity and corporate image.
The hypotheses are as follows:
H3a Publicity intensity on the unethical behavior of a
business founder has a significant influence on positive
founder image.
H3b Publicity intensity on the unethical behavior of a
business founder has a significant influence on positive
corporate image.
H3c Founder image is a mediator between publicity
intensity and corporate image.
Recovery Performance, Founder Image, and Corporate
Image
Many companies position themselves as actively engaging in
and supporting CSR activities. The unethical behavior of
business founders may lead to perceptions of corporate
hypocrisy and negatively influence the firm’s evaluations
(Wagner et al. 2009). Therefore, companies need to take
remedial measures to restore their image. Hunter (2010) finds
that the effect of negative celebrity information on a company
brand is worse when the company supports the celebrity rather
than fires him. Similarly, Haigh and Dardis (2012) find that the
image restoration strategy employed influences the organi-
zation–public relationship and the consumers’ perceptions of
CSR, indicating that the level of recovery performance affects
image restoration. McCollough (2009) finds that a higher level
of recovery performance results in greater post-recovery sat-
isfaction. Therefore, the present study proposes that recovery
performance is positively related to positive corporate
image.
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D.-H. Zhu, Y.-P. Chang
Business founders are central to their own unethical
behaviors. Therefore, the remedial measures that compa-
nies take affect consumer response to their founders. In
general, after the disclosure of scandals about hired senior
managers and CEOs, the primary remedial measure of
companies is to ask the people to resign. For example, on
the heels of a sexual harassment case against Mark Hurd,
the CEO of Hewlett-Packard, the company issued a state-
ment announcing that Hurd had decided with the board of
directors to resign immediately. However, because the
business founder started the company and shaped its cul-
ture, a company’s remedial measures are usually more
complex when its founder engages in unethical behavior.
When business founders are at fault, in addition to
emphasizing that such incidents are the personal matters of
the founders, companies usually mention positive things
about their founders when the media interview their
spokesperson or publish official announcements. For
example, after the sex scandal of Song Shanmu, the Sun
Moon Education Group immediately announced that the
rumors surrounding Song Shanmu were his personal mat-
ters, which would definitely not affect the normal opera-
tions and educational activities of the company. The
statement pointed out that Song Shanmu has voluntarily
rushed back to Shenzhen to assist law enforcement with
their investigation, as opposed to the rumors that he has
been listed as a wanted fugitive (Sun Moon 2010). Sun
Moon Education Group’s new director even told reporters
that Song Shanmu is a talented and filial person, which
may have a positive impact on the image of Song Shanmu.
Therefore, the current study proposes that recovery per-
formance is positively related to positive founder image.
Based on the balance theory, this study also proposes that
founder image is a mediator between recovery performance
and corporate image.
The hypotheses are as follows:
H4a Recovery performance about the unethical behavior
of a business founder has a significant influence on positive
founder image.
H4b Recovery performance about the unethical behavior
of a business founder has a significant influence on positive
corporate image.
H4c Founder image is a mediator between recovery
performance and corporate image.
Control Variables
Lake et al. (2010) state that if consumers believe that a
company has a history of ethical behavior, they are less
likely to believe damaging new information immediately.
This conclusion may suggest that consumers’ initial
Founder’s Unethical Behavior and Corporate Image
impression of a business founder influences their responses
to negative publicity about the business founder’s unethical
behavior. In addition, previous studies also suggest that age
and gender affect consumer responses to negative infor-
mation about product hazard incidents. For example,
Weinberger and Lepkowska-White (2000) find younger
adults (18–34) to be more sensitive to product safety haz-
ard incidents. Jackson et al. (1992) find females more likely
to feel that manufacturers are doing all they can to prevent
product tampering. These studies propose that age and
gender have similar effects on consumer responses in the
context of negative publicity about business founders’
unethical behaviors. Hence, this study involves three con-
trol variables, namely initial impression, age, and gender.
As the main purpose of this study is to explore the key
research variables described above, hypotheses related to
the effects of the control variables are not explicitly
developed.
Method
Data Collection
Based on aspects of the unethical behaviors of business
founders toward society, investors, and employees, nega-
tive publicity cases about three well-known business
founders’ unethical behaviors in China are used as survey
backgrounds in this study.
The first is the ‘‘contribution door’’ event involving
Wang Shi, the founder of Vanke Group, the largest real
estate enterprise in China. Wang Shi asked his staff to
restrict their individual contributions to just 10 RMB
(USD 1.40), and the company made a small donation
(USD 290,000) to victims of the devastating Sichuan
earthquake (McGinnis et al. 2009). Netizens called the
incident the ‘‘contribution door.’’ This incident is an
unethical behavior related to philanthropy. The second case
is the stock price manipulation event involving Huang
Guangyu, the founder of Gome Group, the largest retail
chain in China. As the major shareholder of the Shenzhen-
listed Beijing Centergate Technologies (Holding) Co., Ltd.,
Huang Guangyu was found guilty of insider trading of
company stocks valued at more than RMB 1.415 billion
(Xinhua 2010). The stock price manipulation case is an
unethical behavior of business fraud. The last case is the
sex scandal involving Song Shanmu, the founder of Sun
Moon Education Group, a big multinational group of chain
education centers. Song Shanmu was arrested and impris-
oned for raping a 22-year-old subordinate female (China
Whisper 2010). The sex scandal is an unethical behavior of
sexual harassment in employer–employee relations. The
first two cases are unethical behaviors from a professional
115
Table 1 Composition of sample
Variable Items Percentage
Gender Male 61.6
Female 38.4
Age \20 7.3
20–30 62.9
31–40 23.3
[40 6.5
Case Wang Shi—‘‘Contribution door’’ event 25.4
Huang Guangyu—Stock price manipulation 45.2
case
Song Shanmu—Sex scandal 29.4
ethics point of view, while the third case is one of the
private spheres.
The population used in the study was composed of
people who were aware of at least one of the aforemen-
tioned cases. A questionnaire was used to collect data.
Before the formal survey, 15 marketing majors were sur-
veyed. The questionnaire was modified based on the stu-
dents’ feedback and then published on a professional
online survey site. Respondents were asked to select the
case they were most familiar with and then to fill out the
questionnaire based on their perception of the case. A total
of 282 questionnaires were received. Respondents who
knew none of the cases were excluded through screening
questions. The final sample size was 218. The final
respondents consisted of 61.6 % males and 38.4 %
females. The age range was 18–60 years, with the majority
of respondents between 20 and 30 (62.9 %). A total of
27.1 % (59) were students. Table 1 shows the composition
of the sample.
Measurement
Five constructs were measured in the current study: cor-
porate image, founder image, perceived severity, publicity
intensity and recovery performance. All scale items used
five-point Likert scales anchored between ‘‘strongly
disagree’’ and ‘‘strongly agree,’’ except that items of per-
ceived severity were based on five-point semantic differ-
ential scales.
Corporate image is the overall image perception con-
sumers have of a company. Corporate image was measured
using items from the scale of Pina et al. (2006). This
portion included three items. Founder image is the overall
image perception of consumers on an individual who
started a company. The measurement for founder image
was developed from the study of Pina et al. (2006) as well.
This portion also included three items.
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Perceived severity is the consumer opinion of how
serious a negative publicity event about a business foun-
der’s unethical behavior is. The measurement for perceived
severity was developed from the study of Maxham and
Netemeyer (2002) and Ingram et al. (2005), with two items
reworded to reflect the context of this study. This portion
included three items. Publicity intensity is the degree of
media and public attention to a negative publicity event
about a business founder’s unethical behavior. The mea-
surement for publicity intensity was developed in this
study. This portion included five items. Recovery perfor-
mance is the performance of remedial actions taken by a
company in response to a negative publicity event about its
founder’s unethical behavior. The measurement for
recovery performance was adopted from the study of Zhao
et al. (2005). This portion included three items.
In addition, the control variable ‘‘initial impression’’ refers
to the consumer impression of a business founder before the
unethical behavior occurred. Initial impression was measured
by one item that used five-point Likert scales anchored
between ‘‘strongly disagree’’ and ‘‘strongly agree.’’ The item
is ‘‘my overall impression on XXX (business founder’s name)
was favorable before the negative event.’’
Data analyses
Common Method Bias
Harman’s single-factor test is arguably the most widely
known approach for assessing common method bias in a
single-method research design (Malhotra et al. 2006). The
current study performed two tests to examine the common
method bias. First, this study performed an exploratory
factor analysis by entering all measurement items, the results
show that the largest variance explained by an individual
factor is 31.93 %. Podsakoff and Organ (1986) claim that if
the variables all load on one factor or one factor explains the
majority of the variance, common method variance may be a
problem. The results show that neither a single factor nor a
general factor accounts for the majority of the covariance in
the measures. Second, this study performed a confirmatory
factor analysis by modeled all items as the indicators of a
single factor, the results show a poor fitness. Method biases
are assumed to be substantial if the hypothesized model fits
the data (Malhotra et al. 2006). Thus, the results of both tests
indicate that common method bias is not a significant
problem for this study.
Measurement Model
A structural equation modeling technique called partial
least squares (PLS) was explored to test the theoretical
model. This analytical technique is suited for predictive
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D.-H. Zhu, Y.-P. Chang
applications and theory building (Gefen et al. 2000). The
PLS-Graph3.0 software was used. The assessment of the
quality of measurement model used reliability and validity
test.
Reliability tests using Cronbach’s a values verified the
internal consistency of the items. In all variables, the values
of Cronbach’s a are above 0.8 (Table 2), which are higher
than the threshold level of 0.7 suggested by Nunnally
(1978). Composite reliability (CR) is a more rigorous
estimate of reliability (Chin and Gopal 1995). All the
values of CR are above 0.8 (Table 2), meeting the criterion
of strong reliability. The high values demonstrate the
reliability of the measurement model.
The values of factor loadings are above 0.7. The average
variance extracted (AVE) values of all constructs are above
0.6 (Table 2). The results support the convergent validity
of the measures (Fornell and Larcker 1981). In addition,
according to Fornell and Larcker’s evaluation criterion, the
correlations between all latent constructs must be signifi-
cantly less than the corresponding square root of AVE. The
results show that the square root of AVE values of all
constructs are significantly higher than the corresponding
correlations among the latent constructs (Table 3), which
supports the discriminant validity of the measures. All the
criteria demonstrate the construct validity of the measure-
ment model.
Results
Structural Model
A structural model was used to test the hypotheses. The
results show that the standardization path coefficients are
statistically significant (p \ 0.05).
Figure 2 shows that founder image (b = 0.45, p \ 0.01),
perceived severity (b = -0.17, p \ 0.05), publicity inten-
sity (b = 0.17, p \ 0.05), and recovery performance
(b = 0.40, p \ 0.01) are predictors of corporate image,
accounting for 45 % of variance explained (R2 = 0.45). As
the study hypothesized that founder image, perceived
severity, publicity intensity, and recovery performance
would significantly affect corporate image, hypotheses H1,
H2b, H3b, and H4b are supported.
In addition, the results show that perceived severity
(b = -0.48, p \ 0.01), publicity intensity (b = 0.28,
p \ 0.01), and recovery performance (b = 0.25, p \ 0.01)
have an effect on founder image. As the study hypothesized
that perceived severity, publicity intensity, and recovery
performance would significantly affect positive founder
image, hypothesis H2a, H3a, and H4a are supported.
With respect to the effects of control variables, initial
impression has significant impact on corporate image
Founder’s Unethical Behavior and Corporate Image 117

Table 2 Latent variables statistics

Construct Item Measurement Loading a CR AVE

Corporate image After the negative event about its founder, I think the XXX (company’s name) is
CI1 Regarded 0.87 0.91 0.94 0.84
CI2 Trustworthy 0.95
CI3 Dependable 0.94
Founder image After the negative event, I think XXX (business founder’s name) is
FI1 Regarded 0.95 0.95 0.97 0.92
FI2 Trustworthy 0.97
FI3 Dependable 0.95
Perceived severity In my opinion, the negative event about XXX (business founder’s name)
PS1 Was a minor–major problem 0.83 0.83 0.89 0.74
PS2 Had a small–huge negative impact 0.87
PS3 Was not serious–very serious 0.88
Publicity intensity In my opinion, the negative event about XXX (business founder’s name)
PI1 Got a long time attention from the media and public 0.75 0.86 0.90 0.64
PI2 Got a high exposure frequency 0.85
PI3 Was concerned by a lot of media and people 0.86
PI4 Was concerned by reputable media and people 0.83
PI5 Got a high discussion intensity by the media and public 0.72
Recovery performance In response to the negative event about its founder, I think the XXX(company’s name) has taken
RP1 Good recovery tactics 0.90 0.84 0.90 0.76
RP2 Reasonable recovery tactics 0.92
RP3 Satisfying recovery tactics 0.79
a Cronbach’s alpha

Table 3 Correlation of
Corporate Founder Perceived Publicity Recovery
constructs and AVE
image image severity intensity performance

Corporate image 0.92

Founder image 0.59 0.96
Perceived severity -0.18 -0.29 0.86
Square root of the AVE on the Publicity intensity 0.23 0.14 0.51 0.80
diagonal, correlations between Recovery performance 0.39 0.27 0.21 0.39 0.87
constructs on the off-diagonal

(b = 0.21, p \ 0.05). The effects of age and gender on

Perceived severity
corporate image are not significant.
-0.48**
-0.17* Founder image

0.28**
0.45** Mediation Analysis
Publicity intensity
0.17*
Corporate image According to the standard of Baron and Kenny (1986), a
0.25**
variable functions as a mediator when it meets the fol-
0.40**

Recovery performance
0.04n
0.21*
Age
Initial impression
Fig. 2 The PLS analysis of the research model. * p \ 0.05;
** p \ 0.01; n not significant
0.04n lowing three conditions: (1) variations in levels of the
independent variable significantly account for variations in
Gender the presumed mediator (i.e., Path a), (2) variations in the
mediator significantly account for variations in the depen-
dent variable (i.e., Path b), and (3) when Paths a and b are
controlled, a previously significant relation between the
independent and dependent variables is no longer

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significant, with the strongest demonstration of mediation
occurring; in addition, if a previously significant relation
between the independent and dependent variables is still
significant but the coefficient has a significant reduction, it
demonstrates that a given mediator is indeed potent.
In Table 4, the model 1 shows that there are significant
relations between independent variables (i.e., perceived
severity, publicity intensity, and recovery performance)
and the dependent variable (i.e., corporate image). In
addition, model 2, model 3, and model 4 show that the
three conditions for mediation are met: (1) the effect of
perceived severity on positive founder image (b = -0.48,
p \ 0.01), the effect of publicity intensity on positive
founder image (b = 0.30, p \ 0.01), and the effect of
recovery performance on positive founder image
(b = 0.25, p \ 0.01) are statistically significant; (2) the
effect of founder image on corporate image (b = 0.56,
p \ 0.01) is statistically significant; and (3) the effect of
perceived severity on positive corporate image (b =
-0.17, p \ 0.05), the effect of publicity intensity on
positive corporate image (b = 0.17, p \ 0.05), and the
effect of recovery performance on positive corporate image
(b = 0.40, p \ 0.01) are statistically significant. Though
the previously significant relations (in model 1) between
independent variables (i.e., perceived severity, publicity
intensity, and recovery performance) and the dependent
variable (i.e., corporate image) are still significant, the
coefficients (in model 4) have a significant reduction.
These results provide support for founder image as a
mediator of the relationships between perceived severity
and corporate image (H2c), publicity intensity and corpo-
rate image (H3c), and recovery performance and corporate
image (H4c); hypotheses H2c, H3c, and H4c are supported.
Discussion and Implications
Founder image has a significant positive effect on corpo-
rate image. This conclusion is similar to the finding of
Langmeyer and Shank (1993), who report that a negative
opinion about a celebrity results in the negative perception
of agencies the celebrity endorses. Consumers may closely
associate corporate image with founder image because the
business founders’ ideas about truth, reality, and the way
the world works are the sources of their companies’ culture
(Schein 1983; Fassin et al. 2011). Therefore, the unethical
behaviors of business founders will cause consumers to
have negative images of their companies. Thus, corporate
image positively relates to the founder image. The uneth-
ical behavior of business founders will bring an image
crisis to their companies. In real life, some business
founders intentionally act irresponsible to gain public
attention. Based on the results of this paper, such publicity
123
D.-H. Zhu, Y.-P. Chang
stunts are inadvisable. Business founders should realize the
negative consequences of their unethical behavior and
make strict demands on themselves at all times to preserve
corporate image.
Perceived severity has a direct negative effect on posi-
tive founder image and corporate image. Founder image
mediates the relationship between perceived severity and
corporate image. The severe unethical behavior of a busi-
ness founder makes the stimulus consumers feel stronger,
resulting in a stronger response from the consumers. On
one hand, because business founders are central to their
own unethical behaviors and are significantly associated
with their companies, consumer responses include both
direct negative opinions on founder image and indirect
negative opinions on corporate image. On the other hand,
given that business founders start their own ventures, many
consumers may view the founders and their companies as a
unit and, therefore, regard the unethical behavior of busi-
ness founders as the companies’ unethical events. Negative
publicity has the potential to create negative corporate
associations (Einwiller et al. 2006), so consumer response
includes a direct negative image of corporations. There-
fore, companies should keep a close watch on the severity
of incidents when their founders engage in unethical
behaviors.
Publicity intensity has a direct positive effect on founder
image and corporate image. Founder image mediates the
relationship between publicity intensity and corporate
image. The present study anticipated that publicity inten-
sity has a negative effect on founder image and corporate
image. However, the path coefficients, although significant,
oppose the anticipated direction. This study then conducted
a detailed analysis of Web content posted by netizens and
the media about the three negative publicity cases. Results
show that Web content covered a wide range of subjects
relating to the three unethical behaviors, and even some
positive things about the business founders and companies,
such as the legendary road to success of the founder,
highlighted achievements, social responsibility behavior, and
company stories about high-quality products and services.
In fact, every successful business founder has a prominent
side. The objective content may help consumers understand
the founders and their companies better. That is, the media
and public attention directed toward a negative publicity
event may diffuse or strengthen the negative opinions
consumers have about the severity of the event, and may
inform the consumers about the merits of the founder and
the company.
The negative effects of media and public attention (i.e.,
perceived severity) on positive founder image and corpo-
rate image were discussed in the previous paragraph. On
the aspect of positive effects, previous studies demonstrate
that positive information about a brand can reverse some of
Founder’s Unethical Behavior and Corporate Image 119

Table 4 Mediation analysis

Model 1 Model 2 Model 3 Model 4
Corporate image Founder image Corporate image Corporate image
b T b T b T b T

Control variables
Gender 0.02n 0.225 0.02n 0.320 0.04n 0.664
n n n
Age 0.07 1.249 0.04 0.780 0.04 0.864
Initial impression 0.15* 2.137 0.11n 1.391 0.21* 2.355
Antecedents
Perceived severity -0.40** 6.490 -0.48** 8.022 -0.17* 2.501
Publicity intensity 0.29** 4.743 0.30** 3.071 0.17* 2.276
Recovery performance 0.47** 5.599 0.25** 3.332 0.40** 3.895
Founder image 0.56** 9.031 0.45** 6.820
R2 0.31 0.26 0.36 0.45
n
* p \ 0.05; ** p \ 0.01; not significant

the damage caused by negative information (Butler and
Berry 2002). Therefore, publicity intensity has a positive
effect on positive founder image and corporate image.
Public opinion has a positive side. If negative publicity
about business founders’ unethical behaviors emerges,
companies should report the facts objectively, rather than
hide or deny the event. Companies can guide consumers to
treat company products, services, and company founders
appropriately. In addition, Web content posted by netizens
shows that the histories of business founders are difficult to
ignore, especially in the age of online social media. The
assumption that scandals are quickly forgotten by cynical
marketers is incorrect. Janney and Gove (2011) find that if
a firm’s reputation involves past wrongdoings, negative
perceptions will be difficult to overcome the next time a
problem occurs. Therefore, unethical behaviors of business
founders have a long-term influence on their companies.
Recovery performance has a significant positive effect
on founder image and corporate image. Founder image
mediates the relationship between recovery performance
and corporate image. Negative publicity about business
founders’ unethical behavior differs from product harm and
service failures, which are directly related to the ability and
credit of companies and have a direct negative impact on
consumer confidence. Unethical behaviors of business
founders are their personal behaviors, and every successful
business founder has a prominent side. Therefore, appro-
priate remedial measures may promote positive founder
image and corporate image. The conclusions suggest that
companies must take remedial measures when their foun-
ders engage in unethical behavior. For example, a company
can take appropriate measures to state the company’s
standpoint about the negative event, and objectively assess
its founder and guide consumers to treat the quality prod-
ucts and services of the company rationally.
The initial impressions of consumers on business
founders positively affect positive corporate image after
negative publicity about their founders. Based on the
balance theory, if consumers have a good initial impres-
sion of business founders, they may also have a good
impression of their companies. Good initial impressions
of a company can reduce the negative effects caused by
damaging information (Lake et al. 2010). If consumers
have a good initial impression of a business founder, they
are less likely to change their attitude toward positive
corporate image when the business founder engages in
unethical behavior. When the unethical behaviors caused
by business founders are evaluated, companies need to
consider the influence of the initial impressions of con-
sumers on their founders.
Conclusion, Limitations, and Future Research
In the process of China’s development and modernization,
the amount of negative publicity relating to business
founders’ unethical behaviors is on the rise. This paper
examined the effect of negative publicity about business
founders’ unethical behaviors on corporate image in China.
The results showed that perceived severity, publicity
intensity, and recovery performance of negative publicity
about business founders’ unethical behavior significantly
relate to positive corporate image through the mediation of
positive founder image. Publicity intensity has a positive
impact on positive founder image and corporate image.
Moreover, the initial impressions of consumers were found
to affect positive corporate image. The finding fills the gap
of the effect of negative publicity surrounding business
founders’ unethical behavior on corporate image in the
ethics of the entrepreneurship literature.

123
120
Although the findings provide meaningful implications,
there are several limitations that should be addressed by
future works. The primary aim of this study was to examine
how negative publicity about business founders’ unethical
behaviors affects corporate image, so the relationships
between perceived severity, publicity intensity, and
recovery performance as well as some mediating and
moderating factors were not tested. The relationships
between the three independent variables can be examined
in future studies. Research should consider moderating
variables (such as consumer initial impression of compa-
nies, consumer commitment, and the type of unethical
behavior) and other mediating factors (such as consumer
emotion and trust).
Future research can also compare the effects of negative
publicity of unethical behavior on corporate image among
different endorsers (such as professional managers, typical
celebrities, and experts) and can further examine the effects
on consumer purchase behavior.
Acknowledgments This work was supported by National Natural
Science Foundation of China (71072032) and Ministry of Education,
Humanities and Social Sciences project (12YJC810035).
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