Strategic CEO Activism in Polarized Markets

Abstract

CEOs are increasingly speaking on social issues, but little is known about their motivations and economic consequences. Both within a theoretical model and empirically, we show that CEO social activism is more common in firms with a greater share of operations in US states with high political polarization among consumers, and Republican-donor CEOs are more likely to support liberal causes. CEO social activism increases firm value by 1.3 percent and profitability by 3 percent. We establish sales turnover as a channel through which firms profit from CEO social activism. Corporate decisions that appear stakeholder-driven can ultimately benefit shareholders.

Keywords: CEO Activism, Political Contributions, Corporate Strategy, Firm Value, Strategic Extremism

JEL Classification: D21, D82, G32, L21