Stock Market Response to CEO Sexual Misconduct: Evidence from the #MeToo Era

41 Pages Posted: 27 Jan 2021

See all articles by Robert Mooibroek

Robert Mooibroek

VU University Amsterdam

Willem F. C. Verschoor

Vrije Universiteit Amsterdam, School of Business and Economics; Tinbergen Institute

Date Written: January 22, 2021

Abstract

We examine the impact of CEO-related sexual misconduct on U.S. firms’ stock market value in the #MeToo era. Our findings suggest that investors react negatively to corporate sexual misconduct, meaning that misbehaving CEOs cause significant damage to their shareholders’ wealth. On average, firms lose $2.23 billion when sexual misconduct is uncovered, which corresponds to a total value loss of $42.42 billion in equity market value. CEO-related sexual misconduct is more likely to occur in firms with lower profitability than their direct competitors. Additionally, firms that are larger and have more debt than their industry average are more inclined to employ misbehaving CEOs. Furthermore, CEOs who are accused of sexual misconduct are employed for a shorter period of time.

Keywords: CEO, sexual misconduct, firm value, event studies, #MeToo, reputational penalties, unethical behavior

JEL Classification: G15, G18, G41

Suggested Citation

Mooibroek, Robert and Verschoor, Willem F. C., Stock Market Response to CEO Sexual Misconduct: Evidence from the #MeToo Era (January 22, 2021). Available at SSRN: https://ssrn.com/abstract=3771575 or http://dx.doi.org/10.2139/ssrn.3771575

Robert Mooibroek

VU University Amsterdam

De Boelelaan 1105
Amsterdam, ND North Holland 1081 HV
Netherlands

Willem F. C. Verschoor (Contact Author)

Vrije Universiteit Amsterdam, School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081 HV
Netherlands

Tinbergen Institute ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

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