James Swift

10 September 2020

Strategist’s Digest: How do investors respond to brand activism? 

Contagious digests the most interesting and relevant research from the world of advertising and beyond, because there’s just too much to read and too little time

Photo by Drew Beamer on Unsplash

Corporate Sociopolitical Activism and Firm Value 

By Yashoda Bhagwat, Nooshin L. Warren, Joshua T. Beck, and George F. Watson IV. Published in the Journal of Marketing.

Give it to me in one sentence.

Investors typically respond negatively when brands engage in corporate sociopolitical activism (CSA).

Give me a little more detail.

The researchers used signalling and screening processes to measure how different stakeholders (investors, employees, legislators and customers) reacted to 293 CSA events by 149 companies in the US.

The topline is that, on average, investors reacted badly to CSA, resulting in negative abnormal returns for the company’s stock.

Investors are especially likely to frown upon CSA when they think it deviates from the values of a company’s employees and customers (but not their own values, curiously), and when they believe the CSA will take resources or attention away from profit-making (for instance because the CSA takes the form of actions, rather than statements, or because it was announced by the CEO of the company).

That’s not the end of it, though. Investors may be wary of CSA but they like it when they think it aligns with the values of other stakeholders. Perhaps more importantly, customers respond well to it, too. 

‘Quarterly and annual sales growth are positive and significant for CSA events that have a low level of deviation from customers’ ideology’, report the researchers.

Why is this interesting?

While the effects of CSR on brands are well researched, the effects of CSA are still largely unknown and this research is a good starting point. It’s also chock-full of interesting titbits about the factors that exacerbate or mitigate stakeholders’ reactions to CSA. For instance, investors respond better to CSA when it’s announced by a female, rather than male, CEO. Investors also respond better when a CMO, rather than a CEO, announces the CSA. And contrary to what many marketers would suppose, brand fit (whether the CSA was considered ‘on brand’ for the company) had no significant effect.

Any weaknesses?

The CSA examples were taken from just one country and from between 2011 and 2016. We wonder if people might respond differently to CSA in the present political climate.

Where can I find the whole report?

Here, and it seems to be free to download (at least, it was for us), which was a pleasant surprise.

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