Terrorist Attacks, Managerial Sentiment, and Corporate Policies

54 Pages Posted: 21 Feb 2015 Last revised: 27 Feb 2017

See all articles by Constantinos Antoniou

Constantinos Antoniou

University of Warwick - Warwick Business School

Alok Kumar

University of Miami - School of Business Administration

Anastasios Maligkris

University of Miami - School of Business Administration

Date Written: February 20, 2017

Abstract

Extreme negative events adversely influence people’s sentiment and induce pessimism in risk assessments in unrelated domains. Motivated by this finding, we examine whether managers of firms located in close proximity to terrorist attacks and mass shootings become more pessimistic and choose more conservative corporate policies. Using firm-level sentiment data, we first demonstrate that managers located closer to these negative events become more pessimistic. Then, we show that local managers temporarily reduce R&D expenditure and long-term leverage and increase cash holdings around the periods of terrorist attacks. The impact of negative events on corporate policies becomes weaker as the firm-event distance increases. Further, events with greater media coverage induce larger shifts in corporate policies and the impact is more pronounced among firms with younger CEOs. Collectively, these findings suggest that shocks induced by exogenous and economically irrelevant negative events affect managerial sentiment and corporate policies.

Keywords: Terrorist attacks, mass shootings, managerial sentiment, corporate policies, media coverage, firm location.

JEL Classification: G02, G32.

Suggested Citation

Antoniou, Constantinos and Kumar, Alok and Maligkris, Anastasios, Terrorist Attacks, Managerial Sentiment, and Corporate Policies (February 20, 2017). Available at SSRN: https://ssrn.com/abstract=2566740 or http://dx.doi.org/10.2139/ssrn.2566740

Constantinos Antoniou (Contact Author)

University of Warwick - Warwick Business School ( email )

Coventry CV4 7AL
United Kingdom

Alok Kumar

University of Miami - School of Business Administration ( email )

514 Jenkins Building
Department of Finance
Coral Gables, FL 33124-6552
United States
305-284-1882 (Phone)

HOME PAGE: http://moya.bus.miami.edu/~akumar

Anastasios Maligkris

University of Miami - School of Business Administration ( email )

514 Jenkins Building
Department of Finance
Coral Gables, FL 33124
United States

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