What Happens When Companies (Don’t) Do What They Said They Would? Stock Market Reactions to Strategic Integrity

European Management Review, Vol. 16, pp. 815-831, 2019

45 Pages Posted: 5 Mar 2018 Last revised: 2 Dec 2019

See all articles by Christos P. Mavis

Christos P. Mavis

University of Surrey - Surrey Business School

Ansgar Richter

University of Liverpool - Management School (ULMS)

Christian Landau

EBS Business School

Sascha L. Schmidt

EBS Universität für Wirtschaft und Recht - Institute for Sports, Business & Society

Tony L. Simons

Cornell University

Kai Steinbock

Siemens Management Consulting

Date Written: January 17, 2018

Abstract

Literature on the “power of words” has emphasized the importance of a firm’s corporate communication as a source of legitimacy and reputation in the eyes of its stakeholders. We argue that it is not just the content or style of a firm’s communication about its strategy, but also the alignment between this communication and its subsequent strategic actions that help building legitimacy amongst stakeholders and creating firm performance. We introduce the organization-level construct of “strategic integrity” to capture the notion of alignment between a firm’s strategy communication and its subsequent strategic actions. We investigate the importance of strategic integrity using the case of the German pharmaceuticals firm Bayer AG in the context of its portfolio restructuring. The results of an event study of 98 acquisitions/divestments indicate that stock markets react positively to strategic integrity.

Keywords: Strategic integrity, legitimacy, strategy communication, acquisitions/divestments, event study

JEL Classification: D83, G14, G34

Suggested Citation

Mavis, Christos P. and Richter, Ansgar and Landau, Christian and Schmidt, Sascha L. and Simons, Tony L. and Steinbock, Kai, What Happens When Companies (Don’t) Do What They Said They Would? Stock Market Reactions to Strategic Integrity (January 17, 2018). European Management Review, Vol. 16, pp. 815-831, 2019. Available at SSRN: https://ssrn.com/abstract=3129092

Christos P. Mavis (Contact Author)

University of Surrey - Surrey Business School ( email )

Guildford, Surrey GU2 7XH
United Kingdom

HOME PAGE: http://www.surrey.ac.uk/people/christos-p-mavis

Ansgar Richter

University of Liverpool - Management School (ULMS) ( email )

Chatham Street
Liverpool, L69 7ZH
United Kingdom
44 [0]151 795 3713 (Phone)
44 [0]151 795 3001 (Fax)

Christian Landau

EBS Business School ( email )

Gustav-Stresemann-Ring 3
65189 Wiesbaden, Hessen
Germany

Sascha L. Schmidt

EBS Universität für Wirtschaft und Recht - Institute for Sports, Business & Society ( email )

Gustav-Stresemann-Ring 3
65189 Wiesbaden, Hessen 65189
Germany
0611 7102 2064 (Phone)

Tony L. Simons

Cornell University ( email )

Ithaca, NY 14853
United States

Kai Steinbock

Siemens Management Consulting ( email )

Germany

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