How can a focal firm be affected by its peer firms’ legitimacy disruption? Prior research has tackled this issue by underscoring a similarity-based contagion effect, thus overlooking potential opportunities for the focal firm. Extending the categorization literature, we distinguish between affection-centric and cognition-centric categorical referent and argue that, while the former tends to create a similarity-based contagion effect, the later can generate a similarity-based substitution effect. The contagion effect is amplified with high intra-category coherence and high consensus of perceived disruption, whereas the substitution effect is amplified with low intra-category coherence and low consensus of perceived disruption. We test our arguments in the context of 256 delisting events from 653 foreign firms in the US stock market during 2004 and 2017. We find that following reported delisting of a foreign firm, other stay-listed foreign firms from the same home country experience a negative market reaction (the contagion effect), whereas stay-listed foreign firms from the same industry experience a positive market reaction (the substitution effect). The contagion effect is stronger for countries with low variances of media sentiment across firms and for involuntary delisting events. In contrast, the substitution effect is stronger for industries with high variances of analyst evaluation across firms and for voluntary delisting. We highlight our study’s theoretical and empirical contributions to similarity-based social judgment and intra-category variation.