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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 sg@idfresearch.org
*
s.homroy@rug.nl (corresponding author)
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Abstract

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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.

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