CEO (In)Activism and Investor Decisions
47 Pages Posted: 12 Jun 2020 Last revised: 18 Jun 2020
Date Written: May 18, 2020
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
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