Although organizational reputation is based on the assessment of a firm’s actions, we often observe a discrepancy between a firm’s reputation and its actual practice. We introduce the concept of reputation misalignment to describe this discrepancy and identify its unintended consequence: an increased risk of becoming a litigation target. Drawing on signaling theory, we hypothesize and find that both forms of reputation misalignment—reputation inflation and reputation deflation—are associated with a higher likelihood of lawsuits from unintended audiences such as competitors. We further propose that firm winning experience and board-level legal expertise can mitigate the litigation risk arising from reputation misalignment. Ultimately, our theory and findings suggest that reputation management may be more complex than previously assumed, calling for greater attention to reputation misalignment. Our study offers new insights into research on reputation, signaling theory, and litigation.
