CEO (In)Activism and Investor Decisions

47 Pages Posted: 12 Jun 2020 Last revised: 18 Jun 2020

See all articles by Michael T Durney

Michael T Durney

University of Iowa

Joseph Johnson

University of Central Florida

Roshan K. Sinha

Indiana University - Kelley School of Business - Department of Accounting

Donald Young

Indiana University - Kelley School of Business

Date Written: May 18, 2020

Abstract

Amidst growing pressure from investors and the general public, CEOs increasingly express their views on social, environmental, and political issues. Using an experiment, we offer initial evidence on the effect of this CEO activism on investor decision-making. Specifically, we examine how the (mis)alignment of investor and CEO views on issues more or less relevant to a firm’s operations and a CEO’s choice to publicly take a position (or not) affects investor decisions. Using social identity theory, we predict and find that investors purchase relatively more (less) stock when their views align (misalign) with a CEO’s activist position, regardless of the operational relevance of the issue. We also highlight the pitfalls of taking an activist position – investors respond more negatively to a CEO who takes a position (versus does not take a position) on an issue that is less relevant to the firm’s operations. Supplemental analyses of information search and perceived CEO appropriateness provides further provide support for our theory. Our study contributes to the emerging literature on CEO activism, the literature on CEO communication via social media, and has practical implications for CEOs.

Keywords: CEO Activism, Investor Decision-Making, Social Identity Theory, Social Media, Operational Relevance

Suggested Citation

Durney, Michael Thomas and Johnson, Joseph and Sinha, Roshan and Young, Donald, CEO (In)Activism and Investor Decisions (May 18, 2020). Available at SSRN: https://ssrn.com/abstract=3604321 or http://dx.doi.org/10.2139/ssrn.3604321

Michael Thomas Durney

University of Iowa ( email )

341 Schaeffer Hall
Iowa City, IA 52242-1097
United States

Joseph Johnson

University of Central Florida ( email )

12744 Pegasus Dr.
Orlando, FL 32816
United States

Roshan Sinha (Contact Author)

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States

Donald Young

Indiana University - Kelley School of Business ( email )

1309 East Tenth Street
Indianapolis, IN 47405-1701
United States

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