Abstract

We tested whether the impact of an organizational transgression on consumer sentiment differs depending on whether the organization is a nonprofit. Competing hypotheses were tested: that people expect higher ethical standards from a nonprofit than a commercial organization, and so having this expectation violated generates a harsher response and that a nonprofit’s reputation as a moral entity buffers it against the negative consequences of transgressions. In three experiments participants were told that an organization had engaged in fraud, exploitation of women, or unethical labor practices. Consistent with the moral disillusionment hypothesis, decreases in consumer trust post-transgression were greater when the organization was described as nonprofit, an effect that was mediated by expectancy violations. This drop in trust then flowed through to consumer intentions and consumer word of mouth intentions. No support was found for the moral insurance hypothesis. Results confirm that nonprofits are penalized more harshly than commercial organizations when they breach consumer trust.