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Stakeholder Value: A Convenient Excuse for Underperforming Managers?

Published online by Cambridge University Press:  31 October 2023

Ryan Flugum  and
Matthew E. Souther Open the ORCID record for Matthew E. Souther [Opens in a new window]
Ryan Flugum
Affiliation:
University of Northern Iowa College of Business [email protected]
Matthew E. Souther*
Affiliation:
University of South Carolina Darla Moore School of Business
*
[email protected] (corresponding author)
Rights & Permissions [Opens in a new window]

Abstract

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Firms falling short of earnings expectations are more likely to cite stakeholder-focused objectives in their public communications following earnings announcements. This behavior is consistent with managers preferring to be evaluated by subjective stakeholder-based performance criteria when falling short on objective shareholder-based measures. This increased use of stakeholder language is most evident among firms narrowly missing earnings estimates and appears unrelated to a firm’s actual environmental, social, and governance (ESG)-related activity. Stakeholder language appears to influence the evaluation of CEOs; turnover–performance sensitivity is lower for managers citing stakeholder value. Collectively, our findings are consistent with concerns that stakeholder objectives reduce managerial accountability for poor performance.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , First View , pp. 1 - 34
Copyright
© The Author(s), 2023. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

We appreciate helpful suggestions and feedback from Pat Akey, Alex Edmans, Laura Field, Mariassunta Giannetti, Jonathan Karpoff, Choonsik Lee, Ugur Lel, Doron Levit, Ernst Maug, Michael O’Doherty, Henri Servaes, Thomas Shohfi, Ruoke Yang, Adam Yore, and participants at conference and seminars that include the 2021 Financial Intermediation Research Society (FIRS) Meetings, the 2021 Financial Management Association (FMA) Meetings, the 2022 Clemson ESG & Policy Conference, the 2022 American Finance Association (AFA) meetings, the University of Missouri, and the Securities and Exchange Commission.

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