Stakeholder Value: A Convenient Excuse for Underperforming Managers?

Journal of Financial and Quantitative Analysis (JFQA)

76 Pages Posted: 13 Nov 2020 Last revised: 12 Sep 2023

See all articles by Ryan Flugum

Ryan Flugum

University of Northern Iowa

Matthew E. Souther

University of South Carolina - Darla Moore School of Business

Date Written: September 7, 2023

Abstract

Firms falling short of earnings expectations are more likely to cite stakeholder-focused objectives in their public communications around earnings announcements. This behavior suggests that managers push to be evaluated by subjective stakeholder-based performance criteria when falling short on objective shareholder-based measures. This relation between underperformance and stakeholder language becomes stronger after the 2019 Business Roundtable statement and appears unrelated to a firm’s actual ESG-related activity. Stakeholder language appears to influence the evaluation of CEOs; turnover-performance sensitivity is lower for managers citing stakeholder value. Collectively, our findings suggest that the push for stakeholder-focused objectives provides managers with a convenient excuse that reduces accountability for poor firm performance.

Keywords: stakeholder value, governance, earnings transcripts

JEL Classification: G30, G34, G38, M14, P12

Suggested Citation

Flugum, Ryan and Souther, Matthew, Stakeholder Value: A Convenient Excuse for Underperforming Managers? (September 7, 2023). Journal of Financial and Quantitative Analysis (JFQA), Available at SSRN: https://ssrn.com/abstract=3725828 or http://dx.doi.org/10.2139/ssrn.3725828

Ryan Flugum

University of Northern Iowa ( email )

Cedar Falls, IA 50614
United States
3192732976 (Phone)

Matthew Souther (Contact Author)

University of South Carolina - Darla Moore School of Business ( email )

1705 College St
Francis M. Hipp Building
Columbia, SC 29208
United States

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