Hostname: page-component-586b7cd67f-2brh9 Total loading time: 0 Render date: 2024-11-27T14:04:32.478Z Has data issue: false hasContentIssue false
  • English
  • Français

Strategic CEO Activism in Polarized Markets

Published online by Cambridge University Press:  05 December 2023

Swarnodeep Homroy Open the ORCID record for Swarnodeep Homroy [Opens in a new window]  and
Shubhashis Gangopadhyay
Swarnodeep Homroy*
Affiliation:
Department of Economics, Econometrics and Finance, University of Groningen
Shubhashis Gangopadhyay
Affiliation:
India Development Foundation and UPES University [email protected]
*
[email protected] (corresponding author)
Rights & Permissions [Opens in a new window]

Abstract

Core share and HTML view are not available for this content. However, as you have access to this content, a full PDF is available via the ‘Save PDF’ action button.

In this article, we show that statements of U.S. CEOs on contentious social issues are not necessarily an expression of their political views. Republican-donor CEOs are three times more likely to make social statements with a liberal slant. CEO activism is more likely if firms’ operating environment is politically polarized and employees are Democrat-leaning. Such statements are associated with a 3% increase in consumer visits to a firm’s Democrat County stores without significantly reducing them in Republican counties. CEO activism is associated with a 0.12% gain in firm value, increased quarterly sales, and a reduced likelihood of shareholder activism on social issues.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , First View , pp. 1 - 41
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
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 thank Renée Adams, Viola Angelini, Kevin Aretz, Manuel Bagues, Shantanu Banerjee, Patricia Boyallian, Sudipto Dasgupta, Mirko Draca, Ran Duchin, Alex Edmans, Vyacheslav Fos (the referee), Colin Green, Ian Gregory-Smith, Nandini Gupta, Jarrad Harford (the editor) Niels Hermes, Reggy Hoogheimstra, Daniel te Kaat, Egle Karmaziene, Elisabeth Kempf, Gustavo Manso, Maria Marchica, Jochen Mireau, Alexei Ovtchnnikov, Asad Rauf, Bob Rothschild, Kwok Tong Soo, Margarita Tsoutsoura, Philip Valta, Alminas Zaldokas, and Anwen Zhang for their valuable comments. We also thank the participants at the American Finance Association Annual Meeting 2022, seminar participants at the University of Antwerp, University of Gothenburg, University of Groningen, Vrije Universiteit Amsterdam, University of Reading, and University of Strasbourg for their helpful comments. Silvia Dimitrova, Ulviya Gadzheiva, Rouchen Hu, and Zexuan Yuan provided excellent research assistance.

References

An, Z.; Chen, C.; Naiker, V.; and Wang, J.. “Does Media Coverage Deter Firms from Withholding Bad News? Evidence from Stock Price Crash Risk.” Journal of Corporate Finance, 64 (2020), 101664.CrossRefGoogle Scholar
Baloria, V. P., and Heese, J.. “The Effects of Media Slant on Firm Behavior.” Journal of Financial Economics, 129 (2018), 184–202.CrossRefGoogle Scholar
Bebchuk, L. A., and Tallarita, R.. “The Illusory Promise of Stakeholder Governance.” Available at SSRN 3544978 (2020).CrossRefGoogle Scholar
Bernile, G.; Kumar, A.; and Sulaeman, J.. “Home Away from Home: Geography of Information and Local Investors.” Review of Financial Studies, 28 (2015), 2009–2049.CrossRefGoogle Scholar
Besley, T., and Ghatak, M.. “Retailing Public Goods: The Economics of Corporate Social Responsibility.” Journal of Public Economics, 91 (2007), 1645–1663.CrossRefGoogle Scholar
Bhattacharya, C. B., and Sen, S.. “Consumer–Company Identification: A Framework for Understanding Consumers’ Relationships with Companies.” Journal of Marketing, 67 (2003), 76–88.CrossRefGoogle Scholar
Bizjak, J. M.; Kalpathy, L. S. L.; Mihov, V. T.; and Ren, J.. “CEO Political Leanings and Store‐Level Economic Activity During the Covid‐19 Crisis: Effects on Shareholder Value and Public Health.” Journal of Finance, 77 (2022), 2949–2986.CrossRefGoogle ScholarPubMed
Brown, J. R., and Enos, R. D.. “The Measurement of Partisan Sorting for 180 Million Voters.” Nature Human Behaviour, 5 (2021), 998–1008.CrossRefGoogle ScholarPubMed
Brown, J. R., and Huang, J.. “All the President’s Friends: Political Access and Firm Value.” Journal of Financial Economics, 138 (2020), 415–431.CrossRefGoogle Scholar
Burbano, V. “The Demotivating Effects of Communicating a Social-Political Stance: Field Experimental Evidence from an Online Labor Market Platform.” Management Science, 67 (2021), 661–1328.Google Scholar
Bushee, B. J.; Core, J. E.; Guay, W.; and Hamm, S. J.. “The Role of the Business Press as an Information Intermediary.” Journal of Accounting Research, 48 (2010), 1–19.CrossRefGoogle Scholar
Cahan, S. F.; Chen, C.; Chen, L.; and Nguyen, N. H.. “Corporate Social Responsibility and Media Coverage.” Journal of Banking and Finance, 59 (2015), 409–422.CrossRefGoogle Scholar
Cassidy, W., and Kempf, E.. “The Rise of Partisan Corporate Speech.” Working Paper, Washington University at St. Louis and Harvard University (2022).Google Scholar
Chatterji, A. K., and Toffel, M. W.. “Assessing the Impact of CEO Activism.” Organization & Environment, 32 (2019), 159–185.CrossRefGoogle Scholar
Chen, M. K., and Rohla, R.. “The Effect of Partisanship and Political Advertising on Close Family Ties.” Science, 360 (2018), 1020–1024.CrossRefGoogle ScholarPubMed
Cohen, A.; Hazan, M.; Tallarita, R.; and Weiss, D.. “The Politics of CEOs.” Journal of Legal Analysis, 11 (2019), 1–45.CrossRefGoogle Scholar
Draca, M., and Schwarz, C.. “How Polarized Are Citizens? Measuring Ideology from the Ground-Up.” Available at SSRN: https://ssrn.com/abstract=3154431 (2021).Google Scholar
Dranove, D., and Jin, G. Z.. “Quality Disclosure and Certification: Theory and Practice.” Journal of Economic Literature, 48 (2010), 935–963.CrossRefGoogle Scholar
Edmans, A. “How Great Companies Deliver Both Purpose and Profit.” LBS Review. https://www.london.edu/think/how-great-companies-deliver-both-purpose-and-profit (accessed 11 Jan. 2021) (2019).Google Scholar
Fos, V.; Kempf, E.; and Tsoutsoura, M.. “The Political Polarization of Corporate America.” NBER Working Paper No. w30183 (2022).CrossRefGoogle Scholar
Gallup. “Conservatives Greatly Outnumber Liberals in U.S. States.” Retrieved from https://news.gallup.com/poll/247016/conservatives-greatly-outnumber-liberals-states.aspx (2019).Google Scholar
Gangopadhyay, S., and Homroy, S. “PAC-ing a Punch: Economic Effects of Corporate Political Advocacy.” Available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3976194 (2022).Google Scholar
Garcia, D., and Norli, Ø.. “Geographic Dispersion and Stock Returns.” Journal of Financial Economics, 106 (2012), 547–565.CrossRefGoogle Scholar
Gentzkow, M., and Shapiro, J. M.. “Ideological Segregation Online and Offline.” Quarterly Journal of Economics, 126 (2011), 1799–1839.CrossRefGoogle Scholar
Gimpel, J. G., and Hui, I. S.. “Seeking Politically Compatible Neighbors? The Role of Neighborhood Partisan Composition in Residential Sorting.” Political Geography, 48 (2015), 130–142.CrossRefGoogle Scholar
Glaeser, E. L.; Ponzetto, G. A.; and Shapiro., J. M. “Strategic Extremism: Why Republicans and Democrats Divide on Religious Values.” Quarterly Journal of Economics, 120 (2005), 1283–1330.CrossRefGoogle Scholar
Goldman, E.; Gupta, N.; and Israelsen, R. D.. “Political Polarization in Financial News.” Journal of Financial Economics, forthcoming (2024).CrossRefGoogle Scholar
Grieco, E. “For Many Rural Residents in U.S., Local News Media Mostly Don’t Cover the Area Where They Live.” Pew Research Center. https://www.pewresearch.org/short-reads/2019/04/12/for-many-rural-residents-in-u-s-local-news-media-mostly-dont-cover-the-area-where-they-live/ (2019).Google Scholar
Gurun, U. G.; Nickerson, J.; and Solomon, D. H.. “Measuring and Improving Stakeholder Welfare Is Easier Said Than Done.” Journal of Financial and Quantitative Analysis, 58 (2023), 1473–1507.CrossRefGoogle Scholar
Hambrick, D. C., and Wowak, A. J.. “CEO Sociopolitical Activism: A Stakeholder Alignment Model.” Academy of Management Review, 46 (2021), 33–59.CrossRefGoogle Scholar
Hou, Y., and Poliquin, C. W.. “The Effects of CEO Activism: Partisan Consumer Behavior and its Duration.” Strategic Management Journal, 44 (2022), 672–703.CrossRefGoogle Scholar
Kaplan, E.; Spenkuch, J. L.; and Sullivan, R.. “Partisan Spatial Sorting in the United States: A Theoretical and Empirical Overview.” Journal of Public Economics, 211 (2022), 104668.CrossRefGoogle Scholar
Kolari, J. W., and Pynnönen, S.. “Event Study Testing with Cross-Sectional Correlation of Abnormal Returns.” Review of Financial Studies, 23 (2010), 3996–4025.CrossRefGoogle Scholar
Larcker, D. F.; Miles, S.; Tayan, B.; and Wright-Violich, K.. “The Double-Edged Sword of CEO Activism.” Rock Center for Corporate Governance at Stanford University Closer Look Series: Topics, Issues and Controversies in Corporate Governance, No. CGRP-74; Stanford University Graduate School of Business Research Paper No. 19–5 (2018).Google Scholar
Liu, B., and McConnell, J. J.. “The Role of the Media in Corporate Governance: Do the Media Influence Managers’ Capital Allocation Decisions?” Journal of Financial Economics, 110 (2013), 1–17.CrossRefGoogle Scholar
Loughran, T., and McDonald, B.. “When Is a Liability Not a Liability? Textual Analysis, Dictionaries, and 10‐Ks.” Journal of Finance, 66 (2011), 35–65.CrossRefGoogle Scholar
Lyon, J. D.; Barber, B. M.; and Tsai, C. L.. “Improved Methods for Tests of Long‐Run Abnormal Stock Returns.” Journal of Finance, 54 (1999), 165–201.CrossRefGoogle Scholar
Maćkowiak, B.; Matějka, F.; and Wiederholt, M.. “Rational Inattention: A Review.” Journal of Economic Literature, 61 (2023), 226–273.CrossRefGoogle Scholar
Masters, B. “Activist CEOs are Focusing on the Bottom Line.” Financial Times (2020). https://www.ft.com/content/6f733c47-4c8b-4b60-9549-39ef5183723e (accessed 08 Dec. 2022).Google Scholar
Melloni, G.; Patacconi, A.; and Vikander, N.. “Cashing In on the Culture Wars? CEO Activism, Wokewashing, and Firm Value.” Strategic Management Journal, 44 (2023), 3098–3121.CrossRefGoogle Scholar
MIT. County Presidential Election Returns 2000–2016. doi:10.7910/DVN/VOQCHQ (2020).CrossRefGoogle Scholar
Mkrtchyan, A.; Sandvik, J.; and Zhu, V.. “CEO Activism and Firm Value.” Management Science, forthcoming (2024).Google Scholar
Noh, S.; So, E. C.; and Zhu, C.. “Financial Reporting and Consumer Behavior.” Available at SSRN 3932590 (2021).CrossRefGoogle Scholar
Painter, M. “Consumer Response to Corporate Political Statements: Evidence from Geolocation Data.” Available at SSRN (2020).CrossRefGoogle Scholar
Pew Research Center. “As Partisan Hostility Grows, Signs of Frustration with the Two-Party System.” https://www.pewresearch.org/politics/2022/08/09/as-partisan-hostility-grows-signs-of-frustration-with-the-two-party-system/ (2022).Google Scholar
Reis, R. “Inattentive Consumers.” Journal of Monetary Economics, 53 (2006), 1761–1800.CrossRefGoogle Scholar
Schwartz, N. D. “Mix of Threats and Incentives Sealed a Deal.” New York Times, Dec. 1 (2016).Google Scholar
Shear, M. D., and Kang, C.. “Firms Shudder as Trump’s Twitter Mean Business.” New York Times, July 19 (2018).Google Scholar
Silver, N. “How to Solve the Swing-State Puzzle.” New York Times Magazine. https://www.nytimes.com/2012/09/23/magazine/nate-silver-solves-the-swing-state-puzzle.html (2012).Google Scholar
Smajlbegovic, E. “Regional Economic Activity and Stock Returns.” Journal of Financial and Quantitative Analysis, 54 (2019), 1051–1082.CrossRefGoogle Scholar
Summers, L. “If Business Roundtable CEOs Are Serious About Reform, Here’s What They Should Do.” The Washington Post. https://www.washingtonpost.com/opinions/if-business-roundtable-ceos-are-serious-about-reform-heres-what-they-should-do/2019/09/02/53b05014-cdc0-11e9-8c1c-7c8ee785b855_story.html (accessed 08 December 2022) (2019).Google Scholar
The Economist . “Stakeholder Capitalism Poisons Democracy, Argues Vivek Ramaswamy.” https://www.economist.com/by-invitation/2022/09/14/stakeholder-capitalism-poisons-democracy-argues-vivek-ramaswamy (2022).Google Scholar
The Economist . “Conservative Americans are Building a Parallel Economy.” June 1 (2023). https://www.economist.com/united-states/2023/06/01/conservative-americans-are-building-a-parallel-economy.Google Scholar
Weber Shandwick and KRC Research. “CEO Activism in 2018: The Purposeful CEO.” https://cms.webershandwick.com/wp-content/uploads/2023/01/CEO-Activism-2018_Purposeful-CEO_FINAL_3.7.19.pdf (2018).Google Scholar
Zingales, L. “Towards a Political Theory of the Firm.” Journal of Economic Perspectives, 31 (2017), 113–130.CrossRefGoogle Scholar
Zingales, L. “Don’t Trust CEOs Who Say They Don’t Care About Shareholder Value Anymore.” The Washington Post. https://www.washingtonpost.com/opinions/2019/08/20/dont-trust-ceos-who-say-they-dont-care-about-shareholder-value-anymore/ (accessed 01 December 2022) (2019).Google Scholar
Supplementary material: File

Homroy and Gangopadhyay supplementary material

Homroy and Gangopadhyay supplementary material
Download Homroy and Gangopadhyay supplementary material(File)
File 212.7 KB