1

Organizational Reputation, the Content of Public Allegations and Regulatory Communication

Sharon Gilad, Moshe Maor and Pazit Ben-Nun Bloom The Hebrew University of Jerusalem

ABSTRACT

How does the content of public allegations impact upon regulatory communication strategies? Which type of allegations pose a higher threat to agency reputation, and how do agencies manage these threats via communication? Based on a comprehensive dataset and quantitative content analysis of the Israeli banking regulator’s responses to public expressions of opinion between 1998 and mid-2009, we demonstrate this agency’s greater propensity to acknowledge problems when faced with claims that regulation is overly lenient, as opposed to claims of over regulation, and regarding functional areas with regards to which its reputation is weaker. These findings, while based on one institution, are important because they demonstrate how an agency’s assessment of the relative threat to its reputation is implicated in distinct communicative patterns across functional areas. They also suggest that external audiences can shape agency attention and response by carefully framing their claims in light of their understandings of agencies’ distinct reputational vulnerabilities.

INTRODUCTION

How does the content of public allegations impact upon regulatory communication

strategies? Which type of allegations pose a higher threat to agency reputation, and

how do agencies manage these threats via communication? Recent accounts look at

regulatory agencies’ strategic crafting and management of publics’ external

perceptions of their roles, capabilities and performance, namely: their organizational

reputation. The scholarship focuses on the way in which regulators’ concerns over

reputation shape their decision making processes (e.g. time to drug authorization) and

outputs (e.g. the accuracy of macroeconomic predictions). In his generalized portrayal

of regulators as constructors and protectors of a unique organizational reputation,

Carpenter (2010) has summed up the essence of this reputation-oriented perspective

in the following way: “The lesson of this scholarship is that, when trying to account

for a regulator's behavior, look at the audience, and look at the threats”

(Carpenter 2010b, 832; italics in original). This article seeks to contribute to this

growing body of scholarship in the following important ways. First, it focuses on

regulators’ communication strategies, a terrain that has been neglected by previous

studies of bureaucratic reputation. Second, it analyzes how regulatory communication

2

strategies are shaped by regulators’ simultaneous management of different types of

threats that are imposed upon them by their multiple audiences.

The article builds on our recent contribution to the field of bureaucratic

reputation, in which we examine how an agency’s communication patterns vary given

its multidimensional reputation across functional areas (Maor, Gilad and Ben-Nun

Bloom, working paper, 2012). We argue there that an agency is likely to keep silent

when facing allegations over issues regarding which it generally enjoys an established

positive reputation, and to respond to opinions about core functional areas with

regards to which its reputation is poorer or still emerging. These findings are

important because they indicate that agencies’ sensitivity to – and management of -

external opinions is shaped by their understanding of their distinct and

multidimensional reputations. They also demonstrate that words are action, and,

occasionally, so is regulatory silence. That study, however, analyzes regulatory

response as a binary choice between silence and talk while avoiding more elaborated

analysis of the content of regulatory response.

This article delves into the nuances of regulatory response to audiences’

assessments of their performance. We contend that the content of external opinions,

that is, the type of allegations, should have a profound effect on whether the

regulatory agency will keep silent, deny a problem altogether or admit there is a

problem and either shift blame to others or assume responsibility. In particular, we

focus on regulatory differential reaction to audiences’ claims of under- and over

regulation.1 By “over-regulation” we mean audiences’ claims that regulatory

standards, processes, or behavior impose an excessive burden on the economic,

professional or societal field under regulatory jurisdiction. By contrast, allegations of

“under-regulation” proclaim that regulatory standards, processes or behaviors are

overly lenient towards the regulated sector, and fail to adequately protect the public

interest. Such allegations may focus on the weakness of existing standards, on failure

of the regulator to enforce existing regulation as well as allegations of its capture in

the hands of business to the detriment of the general public.

Based on quantitative media-content analysis of the Israeli banking regulator’s

responses to opinions and criticism from 1998 to mid-2009, we find that this agency’s

1 Of course, not all audiences’ claims embody suggestion of over or under regulation. Nonetheless, criticisms that target a regulator’s efficiency, effectiveness, expertise, competence, operation and so on often involve a claim that regulation is either excessive or overly lenient.

3

choice between silence, problem denial and problem admission is shaped by the

content of the allegations that it faces. When audiences claim that regulation is overly

lenient (namely: under-regulation), the regulator is relatively inclined to admit a

problem rather than either keep silent or deny a problem altogether. In addition,

extending our previous work (Maor et al., 2012), we show that the regulator is more

inclined to admit a problem when facing allegations regarding a functional area

wherein its reputation is poor (consumer protection) and to either keep silent or deny a

problem regarding an area wherein it enjoys a positive reputation (prudential

regulation). Finally, we further find that the regulator’s choice between silence,

problem denial and problem admission is shaped by the context of allegations, namely

their salience and the objective severity of the underlying incidents that they refer to.

We conclude that regulatory choice of response is shaped by the content of

allegations and the relative threat that they pose to the agency’s distinct reputation.

We argue that certain types of claims are inherently more threatening, and therefore

more likely to induce an acknowledgment of a problem. More specifically, we argue

that claims of under-regulation pose a greater threat to regulatory reputation because

they imply agency failure to accomplish its distinct core mandate for protecting a

specific public value (e.g. protecting the public from unintended side effects of

dangerous drugs). By comparison, claims of over regulation refer to the negative

externalities of regulation (e.g. firms’ loss of profits that could have been made had a

drug been authorized faster; or patients’ continued suffering, which could have been

mitigated by a new drug pending authorization). An alternative explanation, which we

cannot exclude on the basis of our case study, is that the relative threat that claims of

under vs. over-regulation pose to agency reputation is context specific. Namely, given

the public’s mood and media discourse in a specific time and place, some type of

allegations can be effectively ignored or denied, whereas others have to be

acknowledged.

These findings offer several new contributions to the study of bureaucratic

reputation and communication. The first is the importance of appreciating that

regulators are more/ less sensitive to certain audience allegations given their content.

This finding challenges the assumption that agencies are equally responsive to all

“external signals” (Noll, 1985) and that they simply pursue an equilibrium wherein

positive feedback is maximized and adverse feedback is minimized. It also means that

the way in which audiences choose to frame their allegations – e.g. as a problem of

4

over vs. under regulation - matters for the content of regulatory response. The second

and related implication is that an agency’s established, and distinct, reputation –

whether good or bad – mediates its sensitivity and reaction to public allegations.

Third, and more particular, the findings presented here suggest that regulatory

communication strategies are crafted with a close attention to the agency’s distinct

reputation and to the consequent relative threat that allegation content and context

poses to agency reputation. These latter findings contribute not only to the study of

bureaucratic reputation, but further challenge the assumptions of the economic

literature on central banks’ communication, which overlooks the political, agency-

regarding, as opposed to task-related, aspects of this phenomenon.

The article proceeds in four sections. The first briefly discusses recent advances

in the study of bureaucratic reputation management. The second provides a more

detailed discussion of the research questions and hypotheses. The third section

describes the selected case and the research design. A fourth section presents the

results, and the final section concludes.

BUREAUCRATIC REPUTATION AND DIFFERENTIAL RESPONSE

TO EXTERNAL THREATS

The scholarship on bureaucratic reputation and analyses that build on this

perspective (Joskow 1974; Kettl 1986; Carpenter, 2001, 2002, 2004, 2010; Carpenter

and Krause 2012; Carpenter, Zucker and Avron 2008; Carpenter, Chattopadhyay,

Moffitt and Nall 2012; Douglas and Krause, 2005; Gersen and O’Connell 2008;

Maor, 2007, 2010, 2011; Maor and Sulizeanu-Kenan, forthcoming; Moffitt, 2010;

Whitford 2005; Yackee and Yackee 2010) emerged as a challenge to the assumption

of institutional-choice theory that in the absence of exogenous political control

bureaucrats will exploit their office in pursuit of their narrow self interests (Horn,

1995; Huber and Shipan, 2002; McCubbins and Schwartz, 1984; Wood and

Waterman, 1991). The reputation-centered challenge to institutional-choice theory

builds upon an earlier stream of research that proposes that bureaucracies carefully

calibrate their response to multiple external signals from their environment in pursuit

of maximizing overall support and minimizing negative feedback (Noll, 1985; Olson,

1995, 1996, 1997). This earlier approach suggests that holding budget constrains

constant, public agencies are equally responsive to all external signals irrespective of

their content and context. In contrast, a reputation-centered perspective suggests that

5

agencies pay uneven attention to external signals given their assessment of the relative

threat to the agency’s distinct reputation (Gilad, 2012).

Before elaborating how reputation shapes agencies’ differential response to

external signals and demands, we need a workable definition of this concept. In the

broadest sense, reputation regards audiences’ association between an organization and

distinctive traits (Carpenter, 2010; Fomburn, 1996, forthcoming). That is, reputations,

like perceived personal characteristics, are unique, and thereby differentiate an

organization from other similar entities. Organizational reputations are formed in

interaction between an agency’s claims regarding its roles, capabilities, performance

and so forth, and its multiple audiences’ judgments of these claims (Carpenter, 2010;

Gilad, 2008). This linkage between an organization and its perceived traits, once

established, is relatively stable (cf. Albert and Whetten, 1985), although, needless to

say, good reputations can be tarnished and bad reputations can be repaired. Finally,

and significant for regulatory agencies that are the subject matter of our study,

organizational reputations are multi-dimensional (Carpenter, 2010: 35; Maor 2011).

One aspect of this multidimensionality is that audiences’ judgments of an agency may

simultaneously regard its output performance, the expertise of its staff, its values

and/or the legality of its processes (Carpenter, 2010). Another aspect of

multidimensionality is that agencies’ reputations may vary across functional areas

(Maor et al., 2012). And finally, as we emphasize in this article, audiences may differ

in their normative assessments of a regulatory agency as either under or over

regulating the industry under its jurisdiction.

So how does reputation shape agencies’ behavior, and their uneven attention

and responsiveness to external signals and demands? Current studies show that

agencies’ management of risks to their reputation is embedded in their decision-

making processes (Carpenter, 2002, 2004; Gilad, 2009; Gilad and Yogev,

forthcoming; Maor and Sulizeanu-Kenan, forthcoming) and outputs (Douglas and

Krause, 2005; Maor, 2011). Few studies further investigate how reputational concerns

shape agencies’ endogenous structure of their jurisdiction or domain (Gilad, 2008;

Maor, 2010). The contrasting findings of two studies, both regarding the American

Food and Drug Administration’s (FDA) decision-making processes, are particularly

noteworthy. Carpenter’s (2002) empirical analysis of FDA processing of businesses’

applications for drug approval demonstrates this agency’s tendency to delay its

decisions, and to require multiple testing for potential drug adverse effects, so as to

6

safeguard its reputation as guardian of the public’s safety. It is only when the salience

of relevant diseases is high, and when the agency faces intense interest-group demand

to expedite its decision making, that the FDA is inclined to shorten its time-to-

authorization. Conversely, in the context of enforcement, Maor and Sulizeanu-Kenan

(forthcoming) find that the FDA’s normal approach is to quickly issue formal

warnings to firms following an investigation. It is only when media valence of the

agency is positive and agency profile salient that the FDA allows itself more time to

consider a case before issuing a formal warning. Hence, taken together these studies

demonstrate, but do not acknowledge, the FDA’s differential management of external

signals across tasks. Namely: its relative disregard for businesses’ and patients’

demand for quick drug approval, alongside its hyper responsiveness to public

demands for swift enforcement. Put differently, the findings of these studies suggest

that agencies manage simultaneous threats to their multidimensional reputation by

means of distinctive procedural patterns.

Building on the above studies, the focus, and intended contribution, of this

article is on agencies’ simultaneous management of multiple threats to their

multidimensional reputations via communication. We are interested in agencies’

complex management of different allegation content, while accounting for the

changing context of allegations and the agency’s low or high reputation reserves

across functional areas. But why focus on communication? First, it seems patent that

communication is a key terrain wherein agencies manage threats to their reputation,

alongside their adaptation of processes, outputs and claims of jurisdiction. To the best

of our knowledge, Maor et al. (2012) is the first systematic investigation of how

agencies’ reputational concerns shape their choice between silence and response to

external allegations. In this article we build on that work to further investigate the

logic underlying agencies’ content of response; i.e. their choice between silence,

problem denial and problem admission. By focusing on communication we are able to

analyze agencies’ simultaneous management of multiple audiences’ claims of under

and over-regulation, across regulatory functional areas, while controlling for various

contextual factors.

Second, our dual focus on reputation and communication further contributes to

the scholarly debates in economics on central bank communication (for a survey, see

Blinder et al. 2008). To date, this literature focuses almost exclusively on central

bankers’ use of communication as an integral means of the regulatory task, while

7

overlooking the agency-regarding aspects of communication. Key empirical questions

and findings are derived from the desire to identify the optimal communication

strategy in terms of its contribution to the effectiveness of monetary policy (e.g., how

central bank talk increases the predictability of its actions, hence reducing volatility in

financial markets). The very few contributions in this area that acknowledge the

political value of central banks’ communication strategies revolve around the concept

of central bank transparency (Faust and Svensson 2001), assuming that the more

independent a central bank is, the more accountable, and hence, transparent it should

be (Blinder et al. 2008). This assumption is based on the claim that independent

agencies have a compelling need to account for their actions (Blinder et al. 2008, 8).

A key limitation of this research dealing with optimal levels of transparency (e.g.,

Cruijsen and Eijffinger 2007; Cukierman and Meltzer 1986; Geraats 2002) is its focus

on central bankers’ talk with financial markets, to the exclusion of the general public,

and on the variance in communication strategies either across central banks or across

time, rather than across functional areas (e.g., monetary policy, fiscal policy and

banking supervision). Our article contributes to existing studies of central bank

communication by emphasizing that communication has an independent role to play

in government agencies’ attempts to actively construct the way in which their multiple

audiences judge them. The argument advanced in this article offers a reputation-

centered explanation for variation in central bank responses to multiple audiences and

their diverse allegations. In the following section we draw concrete hypotheses

regarding agencies’ communicative response to external signals, in the form of

allegations in the public domain, given their relative threat to agency reputation.

MANAGING MULTIPLE THREATS TO REPUTATION VIA

COMMUNICATION

Our analytical framework focuses on the shaping of communication as a reputation-

management strategy. It sets out from an assumption that regulators are generally

rational and politically conscious organizations that cautiously construct and protect

their unique reputations (Carpenter 2001, 2004, 2010a, 2010b; Gilad 2009,

forthcoming; Gilad and Yogev forthcoming; Heimann 1997; Krause and Douglas

2005; Maor 2007, 2010, 2011; Maor and Sulitzeanu-Kenan forthcoming; Quirk 1980;

Whitford 2002; Rourke 1984; 1989; Wilson 1989). Organizational reputations “are

valuable political assets – they can be used to generate public support, to achieve

8

delegated autonomy and discretion from politicians, to protect the agency from

political attack, and to recruit and retain valued employees” (Carpenter 2002, 491).

“Reputation uniqueness” according to Carpenter (2001, 5) refers to the demonstration

by agencies that they can create solutions (e.g., expertise, efficiency) and provide

services (e.g., moral protection) found nowhere else in the polity.

Our categorization of regulators’ communication choices builds on the work of

Christopher Hood and his colleagues (Hood, 2011; Hood et al. 2009), business-

management analyses of corporations’ impression management strategies (Elsbach,

1994) and on our own previous work (Maor et al. 2012). We differentiate between

three forms communication that regulators may adopt: silence (i.e. non response),

problem denial (i.e. rejecting the allegation that regulatory standards, actions or state

of affairs are harmful to a legitimate public value or interest) and problem admission

(i.e. agreeing that current standards, actions or state of affairs are problematic, and

either shifting responsibility to others or accepting responsibility).2 Following our

analysis in the previous section, and the categorization of regulatory communication

choices, the article focuses on the following concrete research questions:

How do the content and context of public allegations impact upon agencies’ choice between silence, problem denial and problem admission? How does an agency’s distinct, and multi-dimensional, reputation impact upon its choice between silence, problem denial and problem admission?

The content of allegations

The key innovation of this study is its investigation of whether the content of public

allegations, in and of itself, impacts upon regulators’ perception of the threat to their

reputation and their subsequent response. If we find that some allegations are

inherently more threatening due to their content, while controlling for their context

(i.e. salience, severity and so forth), this would have important implications for our

understanding of audiences’ sources of influence in the public domain. It would mean

that the way in which audiences frame their claims impacts on an agency’s response,

at least on the level of communications.3 It would also substantiate the expectation

2 It should be noted that Hood et al. (2009) use this categorization in order to study ministers’ sequential responses to discrete scandals. We, by contrast, build on this categorization to study bureaucrats’ routine management of their reputation, as well as their response to scandals. 3 Of course, audiences’ framing of an issue is not wholly flexible. Nonetheless, we assume that at least some issues can be framed in different ways.

9

that agencies are not equally responsive to all external signals, but rather that they

give greater weight to certain types of allegations.

In particular, we examine, for the first time, how agencies react to claims of

under versus over regulation.4 For instance, pensioners’ low returns on their pensions

can be framed as a consequence of regulators’ under-regulation of financial firms’ fee

structures. Alternatively, it might be claimed that overburdening, and superfluous,

regulatory requirements results in financial firms’ deduction of high fees from

pensioners’ funds. We focus on this binary distinction between over and under

regulation because it allows us to parsimoniously categorize a wide spectrum of

allegations that are targeted against regulatory agencies.5 We hypothesize that claims

of under regulation are likely to be more threatening to regulators’ reputations, and to

therefore result in their greater inclination to admit a problem rather than either keep

silent or deny a problem altogether. This hypothesis rests on two arguments. First,

allegations of over-regulation refer to the negative externalities of regulation. By

comparison, arguments of under-regulation are directly targeted at the agency’s

fulfillment of is core function of protecting a specific public value. Namely, they

directly threat the agency’s claim for a distinct contribution to the public good (i.e.,

agency’s unique reputation). Second, in certain domains, the harm of over-regulation

is visible and salient only to concentrated groups (regulated business), whereas under-

regulation has greater resonance with the public at large. Consequently, in terms of

reputation, claims of under-regulation pose a greater threat, although they may 4 Maor and Sulizeanu-Kenan (forthcoming) sought to investigate the implication of over vs. under regulation for FDA time-to-enforcement. Yet, in practice, they found that public allegations, in that context, exclusively point to the problem of under regulation. 5 The reasons claims of over- and underreagulation are employed here lies in the plasticity of these concepts and their multifaceted character. At the outset, under vs. over-regulation may be an objective matter (i.e. at any one time an agency excessively enforces some standards vis-à-vis some regualtees, while acting leniently towards others) but may also be an issue of norms and cognition (i.e. what one person perceives as under regulation another perceives as over regulation). Moreover, different audiences may strategically choose to frame an issue in terms of over vs. under-regulation in order to enhance their influence. In addition, claims of over- and unde-regulation may be simultaneously directed at a regulatory agency because an agency may objectively use some of its powers excessively and others leniently (Natapoff 2006, 1718). Once one splits a regulatory agency’s audiences into distinct classes, overregulation may be aimed primarily at one class of regulatees while underregulation may be seen as harm by the other class of regulatees. For example, overenforcement aimed at firms that do not comply with regulatory standards may result in allegations of overenforcement, while underenforcement may be seen as harm suffered by the general public, hence the allegation directed at the agency of underenforcement. These audiences may be furthermore split into two because of the wide spectrum of both types of allegations. Either over- or underreaction may be perceived by some as positive and by others as negative. For example, regulatory restraint in the face of (minor) regulatory non-compliance may be perceived as positive by the regulatees and as negative by those who are directly affected. Overall, the broad spectrum of agency activity exposes the agency to multiple audiences whose response to agency actions is not easily predictable.

10

actually imply lower threat to mobilized collective action against the agency. Thus,

we hypothesize that -

H1a: when facing claims of under regulation a regulator will be relatively inclined to admit a problem (in comparison with either silence or problem denial). H1b: when facing claims of excessive regulation a regulator will be relatively inclined to deny a problem (in comparison with either silence or problem admission).

The context of allegations Although our focus in this article is on the consequences of allegation content, we

expect the context in which audiences make their allegations to further shape

regulatory communication strategies. In particular, we focus on two aspects of

context:

Salience: In line with previous studies, we expect visibility to render agencies more

sensitive to external judgments of their performance (Carpenter, 2002; Maor and

Sulizeanu-Kenan, forthcoming). “Agencies have less of an opportunity to remain

silent when media salience is higher. They get asked about an issue more frequently,

and the absence of a response becomes an issue on its own with each additional

choice to remain silent” (Maor et al. 2012). Consequently, in general we expect an

agency’s inclination to admit a problem to increase with media salience (Cf. King,

2008). Thus, we expect that when media coverage is low an agency will tend to

remain silent. When media coverage is intense, we expect an agency to experience a

compelling need to admit a problem and to provide more substantive account as to

who is to be blamed and/or what should be done. Finally, all else being equal, we

expect that when media coverage is middling, the agency will be compelled to forgo

silence, yet deny the problem altogether. We therefore hypothesize as follows:

H2a: under medium-level salience an agency will be inclined to deny a problem altogether rather than either remain silent or admit a problem (in comparison with either silence or problem admission). H2b: under high-level salience an agency will be inclined to admit a problem (in comparison with either silence or problem denial).

11

Severity: The objective severity of an issue is also likely to shape the level of threat to

reputation that an agency experiences. For example, Carpenter (2002) finds that the

FDA rate of drug approval is faster when a new drug is intended for a more severe

disease and/or in the absence of an alternative drug on the market. Of course, the

severity of issues is, in part, a social construction. That is, just as much as more

serious allegations tend to attract more media attention, the perceived severity of an

issue is partly constructed by media-coverage intensity. Nonetheless, the catastrophic

outcome of some events renders them objectively more severe. Consequently, our

third hypothesis is the following:

H3: when the event underlying public allegations regards an incident with catastrophic outcomes, an agency will be inclined to admit a problem rather than either keep silent or deny a problem altogether.

Agency distinct reputation reserves

Last, we expect that the relative threat that a regulatory agency experiences is either

attenuated or augmented by its understanding of its “reputation reserves”, namely its

established positive or negative reputation. This concept may be related to Maor and

Sulitzeanu-Kenan’s (forthcoming) distinction between reputationally-concerned and

reputationally-relaxed agencies.6 This expectation underlies Carpenter (2001, 2002,

2010) and others’ stress that a positive reputation is an asset that protects an agency

from political attack on its autonomy. It also builds on experimental research, which

shows that a company’s poor reputation results in respondents’ higher attributions of

blame for a crisis event whereas a positive reputation attenuates blame attributions

(Coombs and Holladay, 2006; Klein and Dawar, 2004; Vanhamme and Grobben,

2009). In addition, few studies analyze the extent to which organizations’ reputation

reserves actually shape their differential reaction to external pressures. King (2008)

shows that companies that experience reputation decline in the years preceding a

boycott are more likely to surrender to boycotters’ demands. Companies with a

6 Maor and Sulitzeanu-Kenan opens the possibility of studying the variance in ‘baseline reputational sensitivity’ from which exogenous positive or negative shocks may shift outcomes. For example, according to their findings, enforcement decision duration is typically short for periods in which media coverage of the agency regulatory activity is low. This pattern suggests that FDA enforcement divisions are basically ‘reputationally concerned’, and thus, do not shorten their enforcement decision duration under reputational challenges, but rather extend the time for taking action when their reputation is visibly praised. The lack of reputational reserves over enforcement issues may attribute to precisely such a response.

12

strong and stable reputation prior to the boycott were inclined to endure such pressure,

even under intense media coverage of boycotters’ demands. Our previous study (Maor

et al. 2012) similarly suggests that agency choice between silence and public response

is a function of the strength of its reputation reserves across functional areas. Our

analysis here further explores how an agency’s differential reputation across tasks

impacts its content of response. Following our previous study, we expect an agency to

remain silent when facing allegations about functional areas regarding which it enjoys

long-standing positive reputation, and to admit a problem and provide a substantial

account when facing allegations about domains regarding which its reputation is

already poor. We further expect to find that an agency will be inclined to deny a

problem altogether, rather than either keep silent or admit a problem, when facing

intense media coverage of allegations regarding an area wherein it enjoys a positive

reputation. Thus, we hypothesize:

H4a: when facing allegations regarding a functional area for which its reputation is poor, a regulator will be inclined to admit a problem (in comparison with either silence or denial). H4b: when facing intense allegation regarding a functional area for which the agency enjoys a positive reputation, a regulator will be inclined to deny a problem altogether (in comparison with either silence or admission).

THE ISRAELI BANKING SUPERVISION DEPARTMENT AND ITS

DISTINCT REPUTATION

The Israeli regulator of banks – the Banking Supervision Department (hereafter: the

BSD) - is a statutory unit, located within the Bank of Israel, which is an independent

central bank. The Supervisor of Banks, who heads the BSD, is appointed by the

Governor of the Bank of Israel (Banking Ordinance, 1941, clause 5). Operating

alongside the BSD are four other financial-markets regulators in Israel: the Supervisor

of Capital Markets and Savings, the Supervisor of Insurance, the Securities Authority,

and the Antitrust Authority (which is entrusted with the promotion of competition in

the economy).

The BSD’s mandate is based on several laws.7 Yet its main tasks have not been

defined by law. Consequently, it has defined its role in its annual reports (Ben-Bassat

7 The Banking Ordinance, 1941; the Banking (Licensing) Law, 1981; the Banking (Services to Consumers) Law, 1981; the Bank of Israel Law, 1954, Cheques without Cover Law, 1981, and the Law

13

2007, 24). It perceives the maintenance of the banking system’s financial stability (i.e.

prudential regulation) as its primary goal, and consumer protection and competition as

its secondary goals (Ben-Bassat 2007, 25).

Regarding the sources of the BSD’s reputation, of the aforementioned five

regulators, the BSD enjoys a “near perfect” (external) independence vis-à-vis central

government and its political executives. In terms of material resources, it is ranked

second (after the Securities Authority) with respect to its relative wealth (Ben-Bassat

2007, 43). Being an integral part of the Bank of Israel is no less important. According

to Maman and Rosenhek (2011, 2):

Over the course of an incremental process that began in the mid-1980s, the

Bank of Israel has succeeded in positioning itself at a pivotal position in the

political-economic field and within the state’s apparatus […] An important

source of the Bank of Israel’s power has been its success in positioning itself in

the field as an apolitical agency with the authoritative voice of expertise in

economic matters, an expertise which is based on consensual scientific

knowledge whose veracity is taken for granted (p. 2).

Being institutionally located at the local-global interface, the bank was able to

“instill and embed global logics” (Maman and Rosenhek 2011, 141), especially with

regard to the soundness of the Israeli financial system. The fact that the Israeli

economy emerged relatively unscathed from the global financial crisis (International

Monetary Fund, 2011) reinforced the strong reputation for maintaining banks’ stability

that the Bank of Israel and its Banking Supervision Department already enjoyed.

However, the BSD’s reputation for maintaining the stability of banks has been

attained at the expense of its reputation for the performance of other tasks. Some of

the BSD’s key audiences perceive its focus on prudential regulation as valuable per

se, yet detrimental and rival to its performance in other domains. Leading Israeli

economists criticize the BSD for failing to promote competition in the highly

concentrated Israeli banking sector. They condemn it for encouraging mergers

between small and large banks in order to increase the stability of the banking system

at the expense of inter-bank competition (Ben-Bassat 2007, 114; Knot 1986;

Rotenberg 2002; Yosha, Blei, and Yafeh 2007). However, this criticism arguably

for Encouragement of Competition and Reduction of Conflicts of Interest in the Israeli Capital Markets, 2005.

14

presents only a moderate threat to the BSD’s reputation since promotion of

competition is primarily entrusted with the Anti-Trust Authority (Maor et al. 2012).

A greater threat to the BSD’s reputation comes from its perceived deliberate

under-regulation, and poor performance, in the domain of consumer protection. The

Israeli Consumer Council, politicians and journalists all tend to be critical of the

BSD’s performance in this domain. For example, the recommendations of a working

party, nominated by the Knesset’s Economics Affairs Committee, published in 2004,

suggested that, “The Supervisor of Banks is responsible for goals that are not

necessarily complementary. On the one hand, ensuring the financial stability of the

banking system, which depends…on banks’ profitability and prices. On the other

hand, the Supervisor should protect and promote consumers’ interests…Experience

suggests that this duality of goals is detrimental to consumers” (4). A subsequent

parliamentary enquiry (2007) asserted: “The enquiry has established that in the last

few decades the Supervisor has given excessive weight to the [financial] stability

interest, whereas the consumer interest has received partial attention” (12). Both the

working committee (2004) and the parliamentary enquiry (2007) recommended that

the BSD’s consumer protection function be reassigned, either to another independent

unit within the Bank of Israel, or to a new regulatory agency. It is difficult to think of

a stronger manifestation of the BSD’s poor reputation for consumer protection, and

the threat that this poses for its delegated autonomy, than these declarations by its

overseeing Knesset committee. Consequently, if our aforementioned hypotheses are

correct, we should find that the BSD is relatively inclined to admit (as opposed to

keep silent or deny) problems concerning consumer protection regulation.

DATA AND METHODS

To test the above hypotheses, we constructed a database of opinions regarding the

Banking Supervision Department. The aim of our database construction strategy was

to produce a comprehensive list of opinions for the relevant years. To do so, we

collated all the articles mentioning the BSD, either in the title or body of the article,

that were published in Globes—Israel’s only dedicated business broadsheet—between

1998 and mid-2009 (a total of 3,849 articles). This media outlet was a critical agenda-

setter for other media during the period under consideration. The first author and a

research assistant read through the whole article population, and selected all articles

involving opinions—whether positive or negative—about the BSD and its

15

performance. Opinions were either those that a source made during an interview, or

reports by journalists of an actor’s opinion made elsewhere (e.g., a Knesset

committee, public report, conference, etc.). Our assessment of what makes “an

opinion” vs. “description” intentionally favored inclusion over exclusion of articles.

This process resulted in a database of 524 articles involving one or more opinions,

rather than mere descriptions of facts or events. At a later stage, while coding each

article, we created a separate row for each opinion source or opinion matter, so that

our final database includes 634 opinions or rows.

Each article was coded by a research assistant under close supervision of the

second author (who herself coded 85% of the articles and 100% of those articles that

the research assistant coded as involving BSD response). In unclear cases, the second

author consulted with the first author and together they reached a decision. Finally,

we asked a different research assistant, who had not been previously involved with the

project to independently code a sample of the data (n=118).8

Dependent variable

The dependent variable is a categorical variable indicating the content of the

BSD’s response to opinions about its performance. We code the content of BSD

response, as reported in the media, either directly to journalists’ queries or in response

to audience opinions in a different venue (e.g. BSD’s response to a Member of the

Knesset during hearings at Knesset committees). Following Hood et al. (2009) we

initially coded four types of responses: (i) no response – inasmuch as there was no

BSD response to the opinion/ allegation in the same article9 (n=511, 81%);

8 The inter-coder reliability statistic (Krippendorf-Alpha) was above .7 for all relevant variables (ranging between .714 and .735), other than for our coding of the “regulatory functional area” (see below) where the reliability score was lower than warranted (α=.44). We think that the latter is not a reflection of the quality of our coding, but rather of the fact that the coding of this specific variable requires some expertise in financial regulation. Consequently, the second author, who specializes in financial regulation, verified 100% of the coding for this specific variable. 9 Our coding does not account for the possibility that the Supervisor response was reported in a different article or during the days following the original publication of an opinion. We have explored the frequency of such delayed response, during 3 days following an opinion, for a random sample (10%) of the Supervisor’s non-responses to negative opinions. We find, for this 10% sample, that in 13.5% of cases the Supervisor has responded during the 3 days following the original article. While this rate of delayed responses is not insignificant, we have decided that it is not sufficiently large to justify exploring the possibility of delayed response for all of our cases. Moreover, it is noteworthy that rather than explicitly reporting a “delayed response,” journalists typically reiterate the original opinion and a response to it. Thus, delayed responses are not very frequent, and they are incorporated into our dataset as independent responses to subsequent reporting of an opinion.

16

(ii) problem and responsibility denial10 (n=79, 12.5%); (iii) admission of problem and

shifting of blame11 (n=34, 5%); and (iv) admission of problem and acceptance of

blame12 (n=10, 1.5%). As evident from this distribution silence is the BSD’s

predominant response. In addition, because there are very few cases of blame

admission (n=10) we are compelled to integrate categories III and IV into one

category of “problem admission.”

Independent variables

Our analysis focuses on the effects of three key factors: the content of

allegations (the level of regulation), the context of allegations (salience and severity)

and regulatory reputation reserves across functional areas.

The level of regulation. Each opinion was coded to reflect the source’s opinion

that regulatory standards and/or their enforcement are overly lenient (n=178, 28%),

adequate (n=152, 24%), excessive (n= 180, 28%) or mixed (n=51, 6%). In addition, in

83 cases (13%) we were unable to code the opinion as relating to the level of

regulation.

Media salience of the Banking Supervision Department. For each article, we

computed the number of all other articles that were published about the BSD during

the relevant month. These figures were drawn from our greater database of 3849

Globes articles mentioning the BSD. We test the impact of this variable below and

over its median value.

Severity of the incidents underlying the allegation. To test the impact of

severity, we constructed a binary measure of all incidents where a bank collapsed

(“1” = opinions regarding incidents of banks’ collapse; and “0” = all other

allegations).13 Bank collapses are a good proxy for severity given their direct impact

on shareholders, customers and their indirect impact on investors’ confidence in the

10 This category includes any of the following: full denial of the event or harm done, denial of the seriousness of the event or harm, claim that the action taken (or inaction) is fully justified given the public interest, professional considerations and/or international practice. 11 This category includes any case wherein the agency acknowledges that the public’s interest has been harmed, yet suggesting that force majeure or someone else is to be blamed for this bad outcome. 12 This category involves cases wherein the agency acknowledges that the public’s interest has been harmed and either assumes full responsibility (e.g. declaring the agency’s head’s resignation, the initiation of an internal enquiry or agency implementation of remedial action) or offers excuses and explanations to partially reduce the level of blame. 13 Two banks collapsed during the research period. One of them - the Commercial Bank –collapsed as a consequence of fraudulent behavior by a bank employee. The second bank – the Industrial Development bank – collapsed due to a high rate of bad debt resulting from its imprudent credit-allocation policy and consequent bank run.

17

banking system. Of the 634 articles in our dataset, 67 pertain to incidents of banks

collapsing.

Agency reputation reserves. As detailed in the previous section, based on

secondary sources (academic literature and Knesset enquiry reports), the BSD is

known to have a strong and positive reputation for prudential regulation and a weak

reputation for carrying out consumer protection and competition regulation. In

addition to these areas with regards to which the BSD has an established (good or

bad) reputation, other type of issues/ functions came in our media content analysis.

Ultimately, we coded each opinion as relating to one of the following functional

areas: (1) prudential: opinions regarding the BSD’s capital adequacy requirements and

its supervision of banks’ financial stability (n=213); (2) consumer protection:

opinions regarding the BSD’s regulation of banks’ services and sales to retail

customers and investors (n=161); (3) competition: opinions regarding the BSD’s

regulation of competition among banks and between the banking sector and other

financial institutions (n=51); (4) fraud: opinions regarding the BSD’s regulation of

bank employees’ alleged fraudulent behavior (n=53); (5) internal governance and

control: opinions regarding the BSD’s regulation of banks’ internal controls and

ownership structure (n=76); and (6) opinions regarding “other,” as well as indistinct,

regulatory functions or actions (n=79).

To further validate our assumptions regarding the variance in the BSD’s

reputation across functional areas, we coded for each article its overall tone—positive,

negative or neutral, accounting for both the source’s opinion and the journalist’s

assessment of this opinion where relevant (n=211, 419, and 4, respectively). Table 1

presents the extent to which each regulatory functional area is associated with an

overall positive or negative coverage.

[Table 1 about here]

Results from this cross-tabulation confirm that the BSD’s reputation – as

reflected in media tone - varies across tasks (χ2=40.59, p<.001). To begin with, in

congruence with the above secondary sources, our data confirms that, during the

relevant research period, the BSD enjoyed an overall positive media assessment of its

performance regarding prudential regulation (50% positive), in comparison to

consumer protection (27%) and competition (28%). In addition, with regards to areas

18

regarding which the BSD lacked an established reputation, Table 1 demonstrates that

the BSD attracted particularly high levels of negative media coverage in relation to

fraud (9.6% positive). This was mainly due to the collapse of one bank as a result of

an employee’s fraudulent behavior.

Control Variables

In addition to the above key independent variables, we controlled for: (1) the

direction of the source’s judgment, differentiating between positive, negative or

mixed opinions (n=157, 422 and 54 respectively); (2) the year in which the article

was published (1998 to mid-2009); and (3) the venue of the opinion, allowing a test

for the extent to which the content of the BSD’s response is shaped by the venue

wherein the source’s opinion is conveyed. This was constructed of nine categories:

(a) opinions that were clearly made during an interview with the source (structured as

a series of questions and responses) or an official press conference (n=86); (b)

opinions by journalists themselves (n=21); (c) Knesset proceedings (n=62); (d) court

proceeding (n=30); (e) formal correspondence with the BSD (n=19); (f) governmental

or semi-governmental report (n=15); (g) conference (n=45); (h) miscellaneous ad hoc

(n=27); or (i) verbatim quotes of sources, where we could not code with full

confidence whether or not these were made in the course of an interview because the

quotes were not structured as a sequence of questions and responses (n=130).

Summary statistics are presented in Table 1A of the Appendix.

RESULTS

When do regulators choose to publicly deny a problem, admit a problem, or

altogether refrain from responding to criticism? In order to consider these alternatives

simultaneously and explicitly model them, we employ Multinomial logistic regression

that estimates three separate contrasts: (1) problem denial relative to no response,

(2) problem admission relative to no response, and (3) problem admission relative to

problem denial. Table 2 presents the beta coefficients from three models examining

the effects of level of regulation, agency salience, issue severity, reputation reserves

across regulatory functions, negativity of source judgment and opinion venue on the

above three outcomes, controlling for the year when the article was published.

[Table 2 about here]

19

Since the models are nonlinear, coefficients do not easily lend themselves to

substantive interpretation. Therefore, we exponentiate the coefficients for the purpose

of presentation, converting them to relative risk ratios, and presenting the results in

Table 3. The relative risk describes the ratio of the odds for the outcome occurring

before and after the change in a specific predictor, holding all other variables constant

(Long, 1997).

[Table 3 about here]

First, in line with H1a, we find that when facing claims of under regulation

(compared to the claims of adequate or mixed regulation), the odds of admitting the

problem relative to not responding increase by a factor of about 4, and the odds of

admitting the problem relative to denying it increase by a factor of about 3, both of

these changes being statistically significant (with the latter significant in a directional

- that is, one-tail - test). Contrary to our expectation (H1b) there is no significant

change in the odds of denial (versus no response) when the regulator is accused of

excessive regulation.

We find mixed support for H2. As expected, the agency is found to be more

inclined to deny a problem rather than remain silent under both medium and high

issue salience (compared to low salience), with the odds for a denying response vs.

silence increasing by a factor of 3.147 and 2.613, respectively, holding all else

constant. However, it was also hypothesized that there is a higher chance for publicly

admitting a problem vs. denying it under high-level salience. Still, the detrimental

effect of high vs. low level salience on the odds for problem admission vs. problem

denial falls short of statistical significance under acceptable confidence level

(although approaches marginal significance, p=.____). In addition, media coverage

intensity does not significantly affect the probability for admitting a problem vs. not

responding at all.

As posited in H3, the severity of the event underlying the allegation, with

incidents of bank collapses employed as a proxy, was found to increase the

probability of publicly admitting a problem relative to either denying it or keeping

silent. Ceteris paribus, the odds for admitting vs. denying a problem increase by a

factor of 10.609 and the odds for admission vs. no response increase by a factor of

4.204 for severe events.

20

We now turn to test for the effect of the strength of the BSD’s reputation

reserves across functional areas on its choice to either refrain from response, respond

by denying the problem, or respond by admitting the problem. In accord with H4, the

Supervisor was found to be more inclined to admit problems regarding its

performance of consumer protection (where its reputation is relatively weak) when

compared with prudential regulation (with regards to which it enjoys a stronger and

more positive reputation), in comparison with either keeping silent or denying the

problem. The odds for admission vs. denial of claims regarding consumer protection

(as opposed to prudential regulation) are approximately 4 times higher, and the odds

for admission relative to no response are expected to increase by a factor of

approximately 7, holding all else constant.

We also find that the Supervisor is inclined to prefer admission to no response

surrounding the issue of bank employees’ fraudulent behavior, which was at the

centre of a major scandal during the research period. Allegation regarding fraud

increases the odds for admitting the problem by a factor of about 7. However, the

probability of admission was not significantly different than the probability for denial,

as suggested by the insignificant coefficient for fraud vs. prudential on the third

column.

Results further indicate that a regulator will prefer to keep silent or admit a

problem rather than denying it, when responding to opinions regarding issues that are

tangential to its distinct reputation or mandate. Consistent with this logic, we find that

issues coded as “other,” which include cases wherein the issue at stake was indistinct

or concerning a function within the domain of another agency (competition) increase

the odds of silence vs. denial by a factor of about 4,14 and increase the odds of

admission vs. denying the problem by a factor of almost 11, holding all else constant.

That is, there is a greater probability that a regulator will either ignore or admit

allegations on such issues than deny them, with no significant change between the

probability of admission and no response. The inclination to remain silent, rather than

deny, allegations relating to indistinct or tangential issues fits well within our

portrayal of the agency’s response as corresponding to relative threats to its

reputation. By comparison, it is hard to reconcile the agency’s preference for problem

14 Results show that “other” issues decrease the odds of denial vs. silence by a factor of .236. Since odds ratio is a multiplicative term, magnitudes of positive and negative effects should be compared by taking the inverse of the effect smaller than 1, yielding a factor of 4.237 (1/.236).

21

admission over denial. A possible answer is that admitting problems regarding

tangential issues is of little consequence for the agency. Thus, when facing such

allegations the agency tends to remain silent (rather than deny them), but inasmuch as

it does respond it acknowledges the problem.

Next, we move to the control variables in the model. Starting with the effect of

the direction of the source’s judgment, we find that a source’s negative perspective

significantly increases the odds of problem denial by the regulator both relative to

keeping silent (by a factor of 4.633) and relative to problem admission (by a factor of

7.143, i.e. 1/.140), with all other variables held constant.

Finally, the model also controls for the venue wherein the source’s opinion is

conveyed. In that vein, we specified controls for eight possible venues, with the

baseline being an opinion presented in an interview or press conference. Findings

show that the Supervisor is inclined to respond to opinions made during parliamentary

Kensett proceedings and in one-to-one correspondence as compared to the baseline of

interview or press conference, either denying or admitting the problem, with no

significant difference between the probability of one type of response over another.15

These finding suggest that certain venues increase the agency’s likelihood to respond

to public allegation (rather than remain silent), but do not shape the nuanced content

of its response (i.e. its choice between problem denial and admission).

CONCLUSION

Regulatory agencies are judged by multiple audiences on the basis of manifold,

and conflicting, criteria. In response to these external signals, agencies may modify

their structures, procedures or practices. They may also, as we stress here, seek to

reshape external perceptions and demands by means of verbal communications.

However, given limited attention and resources, agencies cannot fully attend to all

audiences’ judgments and demands. We propose that the intensity of regulatory

management of external signals is likely to vary with the relative threat to an agency’s

distinct reputation. Hence the focus of this article on agencies’ differential

communication patters as a function of the content and context of public allegations.

15 The same pattern, by which the Supervisor is inclined to respond in either of the two ways, was also found regarding opinions made in “indistinct” venues, that is, venues wherein the venue was unclear, and we also find a tendency to admit vs. deny the problem or ignore it in other “distinct” venues.

22

Unpacking the logic of agency communication patterns, as we do here, fills an

important gap in current studies of bureaucratic reputation management and of

central-bank communications.

Our empirical analysis focuses on the Israeli banking regulator’s choice

between silence, problem denial and problem admission in response to external

judgments of its performance. In particular, we analyze how this agency manages

claims of under versus over regulation. We demonstrate the regulator’s relative

propensity to admit problems (rather than either remain silent or deny a problem

altogether) when faced with claims that regulation is overly lenient (as opposed to

claims that the level of regulation is adequate or mixed). We do not find a similar

pattern for claims of regulatory burden. Thus, although claims of regulatory leniency,

on the one hand, and claims of regulatory burden, on the other hand, are both critical

of agency performance, the former are more likely to elicit agency admission of a

problem. We tentatively propose that this finding may be generalizable inasmuch as

claims of under regulation pose a direct threat to an agency’s reputation for protecting

a specific public value within its jurisdiction, whereas claims of over regulation refer

to the negative externalities of regulation. Nonetheless we acknowledge, and leave for

future research, the possibility that the relative threat that claims of under vs. over-

regulation pose to agency reputation is context specific. Namely, given the public’s

mood and media discourse in a specific time and place, some type of allegations can

be effectively ignored or denied, whereas others have to be acknowledged.

With regards to the context of allegations, we show that the occurrence of a

severe event (bank collapse) unsurprisingly increases the agency’s propensity to

acknowledge a problem. In addition, medium and high levels of salience of public

allegations both increase the agency’s propensity to deny a problem, as opposed to

keeping silent. Contrary to our expectations, even high levels of salience do not

increase the agency’s propensity to acknowledge a problem. These findings further

accentuate our claim that agencies’ attention and sensitivity to external signals are

shaped by the content of allegation well beyond their context.

In addition, extending the results of our previous study (Maor et al. 2012), we

show that the agency’s reputation reserves (i.e. its perceived historical performance)

matters for its choice between silence, problem admission and problem denial. Our

analysis demonstrates the agency’s greater propensity to acknowledge problems

relating to a domain wherein its reputation is weak (consumer protection) as opposed

23

to allegations regarding a function in relation to which it enjoys a positive reputation

(prudential regulation).

Our overall theorization of the above findings is that some allegations, given

their content and/or direction at vulnerable agency domains, pose a higher threat to

agency reputation. They therefore create a compelling need for the agency not only to

respond (rather than keep silent), but to acknowledge a problem and provide an

account even if only in terms of shifting blame to others. Other, apparently equally

salient and severe claims, will instigate less intensive agency response. This entails

that agencies’ attention and response to audiences’ demands is shaped in interaction

between audiences’ framing of their allegations and the agency’s distinct

vulnerabilities.

Although our findings are derived from a single case study, the novel dataset

which has been constructed as part of our research allows us to claim that, as far as we

know, there has not been a more thorough assessment of reputation-induced

regulatory communication. In doing so, we push forward some of the arguments made

in Carpenter’s (2001, 2010a) work, undertaken solely in the context of pharmaceutical

regulation, in a very different empirical context. However, future comparative studies

addressing the reputation management, and communicative dynamics, of government

agencies are still required. Specifically, our findings point towards a promising

avenue for future comparative research on regulatory differential sensitivity to public

allegations of under versus over regulation. Such comparison might be limited to

regulatory agencies within one nation, assessing the consequences of distinct

organizational identities or philosophies. Alternatively, researchers might analyze this

question across national settings (e.g. comparing neo-liberal and coordinated-marked

economies), or across time (e.g. before and after the global financial crisis). We

expect the operational variables that we have constructed for this study to safely

“travel” across organizational and national settings.

24

TABLES AND FIGURES Table 1: Regulatory issues by overall positive/negative tone of the article Tone of the article Negative Positive Total

Prudential 49.8% (105) 50.2% (106) 211 Consumer protection

73.3% (118) 26.7% (43) 161

Fraud 90.4% (47) 9.6% (5) 52 Internal governance & control

77.6% (59) 22.4% (17) 76

Competition 72.5% (37) 27.5% (14) 51

Regulatory issue

Other 67.1% (53) 32.9% (26) 79

Total 66.5% (419) 33.5% (211) 100.0% (630)

χ2(5) = 48.26; p<0.001

Cell entries are the percent of articles for each regulatory issue receiving positive or negative article tone (frequencies in parentheses).

25

Table 2: Multinomial Logistic Regression of the Supervisor’s Content of Response

Denial vs. No Response

Admission vs. No Response

Admission vs. Denial

I. Level of regulation (ref= adequate or mixed)

Under-regulation .267 (.453) 1.414 (.580)** 1.147 (.643)*

Excessive regulation .623 (.484) .990 (.688) .367 (.763)

II. Media coverage intensity (ref= low salience)

Medium salience 1.146 (.492)** .055 (.594) -1.091 (.734)

High salience .961 (.474)** .219 (.606) -.742 (.737)

III. Severity -.926 (.763) 1.436 (.743)* 2.362 (.964)**

IV. Regulatory function (ref= Prudential)

Consumer protection .621 (.402) 1.993 (.595)*** 1.372 (.697)**

Fraud 1.001 (.741) 1.952 (.752)*** .951 (.943)

Other -1.446 (.567)** .940 (.813) 2.386 (.930)**

V. Negative Source Perspective 1.533 (.513)*** -.431 (.578) -1.964 (.707)***

VI. Opinion venue (ref=interview or press conference)

Journalist opinion -.203 (.532) .091 (.761) .294 (.888)

Knesset proceedings 1.621 (.534)*** 2.497 (.830)*** .876 (.896)

Court proceedings -.763 (.731) .275 (.965) 1.038 (1.181)

Formal correspondence or meeting with regulator 2.259 (.698)*** 3.216 (1.037)*** .956 (1.138)

Governmental or semi- governmental reports

.729 (.913) .881 (1.253) .153 (1.463)

Conference .805 (.611) .307 (1.169) -.499 (1.253)

Indistinct other 1.147 (.460)** 1.820 (.790)** .672 (.849)

Distinct other .661 (.743) -14.364 (.787)*** -15.026 (1.030)***

Constant -2.545 (.737)*** -21.263 (1.163)***

-18.718 (1.181)***

N 634 634 634

Log likelihood -279.475 -279.475 -279.475

Wald Chi-Square χ2(56)=4949.6*** χ

2(56)=4949.6*** χ2(56)=4662.7***

Pseudo R2 28.62% 28.62% 28.62% ***p<0.01; **p<0.05; *p<0.1, two tail. Table entries are unstandardized multinomial logistic estimates, with robust standard errors in parenthesis. Fixed effects for years are included, but not presented, in the models.

26

Table 3: Multinomial Logistic Regression of the Supervisor’s Content of Response, Relative Risk Ratios

Denial vs. No Response

Admission vs. No Response

Admission vs. Denial

I. Level of regulation (ref= adequate or mixed)

Under-regulation 1.306 4.112 3.148

Excessive regulation 1.864 2.691 1.444

II. Media coverage intensity (ref= low salience)

Medium salience 3.147 1.057 .336

High salience 2.613 1.245 .476

III. Severity .396 4.204 10.609

IV. Regulatory function (ref= Prudential)

Consumer protection 1.860 7.336 3.943

Fraud 2.721 7.045 2.589

Other .236 2.561 10.869

V. Negative Source Perspective 4.633 .650 .140

VI. Opinion venue (ref=interview or press conference)

Journalist opinion .816 1.096 1.342 Knesset proceedings 5.058 12.150 2.402

Court proceedings .466 1.316 2.823

Formal correspondence or meeting with regulator 9.578 24.926 2.602

Governmental or semi- governmental reports 2.072 2.414 1.165

Conference 2.237 1.359 .607

Indistinct other 3.149 6.170 1.959

Distinct other 1.938 .000 .000

N 634 634 634

Log likelihood -279.475 -279.475 -279.475

Wald Chi-Square χ2(56)=4949.6*** χ

2(56)=4949.6*** χ2(56)=4662.7***

Pseudo R2 28.62% 28.62% 28.62% Table entries are exponentiated multinomial logistic estimates. Fixed effects for years are included, but not presented, in the models.

27

APPENDIX Table 1A: Descriptive Statistics

Variable Mean Std. Dev. Min Max N

I. Level of regulation (ref= adequate or mixed)

Under-regulation .281 .450 0 1 634

Excessive regulation .284 .451 0 1 634

II. Media coverage intensity (ref= low salience)

Medium salience .306 .461 0 1 634

High salience .394 .489 0 1 634

III. Severity .106 .308 0 1 634

IV. Regulatory function (ref= Prudential)

Consumer protection .254 .436 0 1 634

Fraud .084 .277 0 1 634

Other .125 .331 0 1 634

V. Negative Source Perspective

.667 .472 0 1 634

VI. Opinion venue (ref=interview or press conference)

Journalist opinion .345 .476 0 1 634

Knesset proceedings .098 .297 0 1 634

Court proceedings .047 .212 0 1 634

Formal correspondence or meeting with regulator

.030 .171 0 1 634

Governmental or semi- governmental reports

.024 .152 0 1 634

Conference .071 .257 0 1 634

Indistinct other .207 .405 0 1 634

Distinct other .043 .202 0 1 634

[Yet to add Freq(x=1) and descriptive stats for baselines]

28

REFERENCES

Albert, S. and D. Whetten. "Organizational Identity." Research in organizational behavior 7 (1985): 263-95.

Ben Bassat, Avi. 2007. The authorities of agencies regulating capital markets in Israel and its independence. In Regulation of the Capital Market, ed. Avi Ben-Bassat, 21-74. Jerusalem: Israel Democracy Institute.

Blinder, Alan S., Michael Ehrmann, Marcel Fratzscher, Jakob De Haan, and David Jan Jansen. 2008. Central bank communication and monetary policy: A survey of theory and evidence, CEPS Working Paper No. 161, available at: www.princeton.edu/~blinder/papers/08ceps161.pdf (accessed 26.7.2011).

Carpenter, D., J. Grimmer, and E. Lomazoff. "Approval Regulation and Endogenous Consumer Confidence: Theory and Analogies to Licensing, Safety, and Financial Regulation." Regulation & Governance 4, no. 4 (2010): 383-407.

Carpenter, Daniel P. The Forging of Bureaucratic Autonomy: Reputations, Networks, and Policy Innovation in Executive Agencies, 1862-1928, Princeton Studies in American Politics. Princeton, N.J.: Princeton University Press, 2001.

Carpenter, D. P. "Groups, the Media, Agency Waiting Costs, and Fda Drug Approval." American Journal of Political Science 46, no. 3 (2002): 490-505.

———. "Protection without Capture: Product Approval by a Politically Responsive, Learning Regulator." American Political Science Review 98, no. 4 (2004): 613-31.

———. Reputation and Power: Organizational Image and Pharmaceutical Regulation at the Fda: Princeton Univ Press, 2010.

Carpenter, Daniel, Evan James Zucker and Jerry Avorn. 2008. “Drug-Review Deadlines and Safety Problems.” New England Journal of Medicine 358(13):1354.

Carpenter, D. P., and G. A. Krause. "Reputation and Public Administration." Public Administration Review 72, no. 1 (2012): 26-32.

Coombs, W. T., and S. J. Holladay. "Unpacking the Halo Effect: Reputation and Crisis Management." Journal of Communication Management 10, no. 2 (2006): 123-37.

Cruijsen, Carin A. B. van der and Sylvester C. W. Eijffinger. 2007. The economic impact of central bank transparency: A survey. CEPR Discussion Paper No. 6070. Available at: www.arno.uvt.nl/show.cgi?fid=55855 (accessed 7.7.2011).

Cukierman, Alex. 2009. The limits of transparency. Economic Notes 38: 1-37. Cukierman, Alex and Allan Meltzer. 1986. A theory of ambiguity, credibility and

inflation under discretion and asymmetric information. Econometrica 54: 1099-1128.

Elsbach, K. D. 1994. Managing Organizational Legitimacy in the California Cattle Industry: The Construction and Effectiveness of Verbal Accounts. Administrative Science Quarterly 39: 57-88.

Faust, Jon and Lars E. O. Svensson. 2001. Transparency and credibility: Monetary policy with unobservable goals. International Economic Review 42: 369-97. Fombrun, forthcoming. The building blocks of corporate reputation; definitions,

antecedents, consequences In Oxford Handbook of Corporate Reputation, eds. M. Barnett and T. Pollock, Oxford UK: Oxford University Press.

Fombrun, C. J. (1996). Reputation: Realizing value from the corporate image. Boston: Harvard Business School Press.

Geraats, Petra. 2002. Central bank transparency. The Economic Journal 112: 532- 65.

29

Gersen, Jacob, and Anne O’Connell. 2008. “Deadlines in Administrative Law.” University of Pennsylvania Law Review 156: 923.

156: 923.Gilad, Sharon. 2008. Exchange without capture: The UK financial ombudsman service’s struggle for accepted domain. Public Administration 86(4): 907-924.

Gilad, Sharon. 2009. Juggling conflicting demands: The case of the UK financial ombudsman service. Journal of Public Administration Research and Theory 19(3): 661-680.

Gilad, Sharon. 2012. Attention and reputation: Linking regulators’ internal and external worlds. In Executive Government in Crisis, Eds. M. Lodge and K. Wegrich. London: Palgrave.

Gilad, Sharon and Tamar Yogev. Forthcoming. How reputation regulates regulators: Illustrations from the regulation of retail finance. In Oxford Handbook of Corporate Reputation, eds. M. Barnett and T. Pollock, Oxford UK: Oxford University Press.

Heimann, C. F. Larry. 1997. Acceptable Risks: Politics, Policy and Risky Technologies. Ann Arbor: University of Michigan Press.

Hood, Christopher. 2011. The Blame Game: Spin, Bureaucracy, and Self-Preservation in Government: Princeton Univ Press.

Hood, Christopher, Will Jennings, Ruth Dixon, B. Hogwood, and C. Beeston. "Testing Times: Exploring Staged Responses and the Impact of Blame Management Strategies in Two Examination Fiasco Cases." European Journal of Political Research 48, no. 6 (2009): 695-722.

Horn, Murray J. The Political Economy of Public Administration : Institutional Choice in the Public Sector, Political Economy of Institutions and Decisions. Cambridge England ; New York, NY: Cambridge University Press, 1995.

Huber, John D., and Charles R. Shipan. Deliberate Discretion?: The Institutional Foundations of Bureaucratic Autonomy, Cambridge Studies in Comparative Politics. Cambridge: Cambridge University Press, 2002.

Joskow, P. L. "Inflation and Environmental Concern: Structural Change in the Process of Public Utility Price Regulation." JL & Econ. 17 (1974): 291-327.

Kettl, D. F. Leadership at the Fed. New Haven CT: Yale University Press, 1986. King, B. G. "A Political Mediation Model of Corporate Response to Social Movement

Activism." Administrative Science Quarterly 53, no. 3 (2008): 395-421. Klein, Jill and Dawar, Niraj. 2004. Corporate social responsibility and consumers’

attributions and brand evaluations in a product-harm crisis, International Journal of Marketing, 21: 203-17

Knot, Jack H. 1986. The Fed chairman as a political executive. Administration and Society 18: 197-231.

Krause, G. A., and J. W. Douglas. "Institutional Design Versus Reputational Effects on Bureaucratic Performance: Evidence from Us Government Macroeconomic and Fiscal Projections." Journal of Public Administration Research and Theory 15, no. 2 (2005): 281-306.

Maman, Daniel and Zeev Rosenhek. 2011. The Israeli Central Bank: Political Economy, Global Logics and Local Actors. London: Routledge.

Maor, Moshe. 2007. A Scientific standard and an agency's legal independence: Which of these reputation-protection mechanisms is less susceptible to political moves. Public Administration 85: 961-978.

———. 2010. Organizational reputation and jurisdictional claims: The case of the U.S. food and drug administration. Governance 23: 133-159.

30

———. 2011. Organizational Reputation and the observability of public warnings in 10 pharmaceutical markets. Governance 24: 557-582.

Maor Moshe, Sharon Gilad and Pazit Ben-Num Bloom. 2012. Organizational Reputation, Regulatory Talk and Strategic Silence, Paper presented at the Transatlantic Conference on Transparency Research, University of Utrecht, Netherlands.

Maor, Moshe and Raanan Sulitzeanu-Kenan. Forthcoming. The effect of salient reputational threats on the pace of FDA enforcement. Governance.

McCubbins, M. D., and T. Schwartz. "Congressional Oversight Overlooked - Police Patrols Versus Fire Alarms." American Journal of Political Science 28, no. 1 (1984): 165-79.

Moffitt, S. L. "Promoting Agency Reputation through Public Advice: Advisory Committee Use in the Fda." The Journal of Politics 72, no. 03 (2010): 880-93.

Noll, Roger G. "Government Regulatory Behavior - a Multidiciplinary Survey and Synthesis." In Regulatory Policy and the Social Sciences, edited by Roger G. Noll, 9-63. Berkeley: University of California Press, 1985.

Olson, M. "Substitution in Regulatory Agencies: Fda Enforcement Alternatives." Journal of Law, Economics, and Organization 12, no. 2 (1996): 376-407.

Olson, M. K. "Firm Characteristics and the Speed of Fda Approval." 377-401: Blackwell Synergy, 1997.

———. "Regulatory Agency Discretion among Competing Industries - inside the Fda." Journal of Law Economics & Organization 11, no. 2 (1995): 379-405.

Quirk, Paul. 1980. “The Food and Drug Administration.” In The Politics of Regulation. James Q. Wilson, ed. New York: Basic Books.

Rourke, Francis E. 1984. Bureaucracy, Politics, and Public Policy. Boston, MA: Little, Brown.

Vanhamme, J., and B. Grobben. "Too Good to Be True! The Effectiveness of Csr History in Countering Negative Publicity." Journal of business ethics 85 (2009): 273-83.

Wilson, James Q. 1989. Bureaucracy: What Government Agencies Do and Why They Do It. New York: Basic Books.

Whitford, Andrew B. 2005. “The Pursuit of Political Control by Multiple Principles.” Journal of Politics 67(1): 29–49.

Wood, B. D., and R. W. Waterman. "The Dynamics of Political Control of the Bureaucracy." American Political Science Review 85, no. 3 (1991): 801-28.

Yackee, Jason Webb, and Susan Webb Yackee. 2010. “Administrative Procedures and Bureaucratic Performance: Is Federal Rule-Making ‘Ossified’?” Journal of Public Administration Research and Theory 20(2): 1–22.

Yosha, Oved, Sharon Blei and Yishay P. Yafeh. 2007. The Israeli banking system in historical perspective: Diversification versus competition. In The Bank of Israel: Selected Topics in Israel’s Monetary Policy, eds. Nissan Leviatan and Haim Barkai, Vol. 2, 171-284. Oxford: Oxford University Press.