Strategic CEO Activism in Polarized Markets

Journal of Financial and Quantitative Analysis ISSN: 0022-1090 (Print) | 1756-6916 (Online)

70 Pages Posted: 1 Jul 2020 Last revised: 14 Nov 2023

See all articles by Shubhashis Gangopadhyay

Shubhashis Gangopadhyay

India Development Foundation; University of Gothenburg; University of Groningen, Faculty of Economics and Business, Students; Indian School of Public Policy

Swarnodeep Homroy

University of Groningen

Date Written: June 1, 2020

Abstract

CEOs are increasingly making public statements on contentious social issues. In this paper, we examine what motivates CEOs to engage in social activism. We show that CEO social activism is a strategic choice and not necessarily an expression of the CEO’s own political views. Republican-donor CEOs are three-times more likely to make social statements with a liberal-slant. They are also more likely to make social statements when their firm’s operating environment is politically polarized, and when their employees are Democrat-leaning. Such statements are associated with a 3% increase in consumer visits to a firm's stores in Democrat counties without significantly reducing them in Republican counties. CEO activism is also associated with a 0.12% gain in firm value, increased quarterly sales turnover, and a reduced likelihood of shareholder activism on social issues. Our results suggest that corporate actions that appear to be stakeholder-driven can be motivated by economic concerns.

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

JEL Classification: D21, D82, G32, L21

Suggested Citation

Gangopadhyay, Shubhashis and Homroy, Swarnodeep, Strategic CEO Activism in Polarized Markets (June 1, 2020). Journal of Financial and Quantitative Analysis ISSN: 0022-1090 (Print) | 1756-6916 (Online), Available at SSRN: https://ssrn.com/abstract=3622605 or http://dx.doi.org/10.2139/ssrn.3622605

Shubhashis Gangopadhyay

India Development Foundation ( email )

4101 DLF Phase IV
Gurugram, Haryana 122002
India
+91 9910991221 (Phone)

University of Gothenburg

Gothenburg
Sweden

University of Groningen, Faculty of Economics and Business, Students

Postbus 72
9700 AB Groningen
Netherlands

Indian School of Public Policy

Delhi
India

Swarnodeep Homroy (Contact Author)

University of Groningen ( email )

Nettlebosje 2
Department of Economics, Econometrics and Finance
Groningen, Groningen 9747 AE
Netherlands

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