Sorry Doesn't Cut It, or Does It? Insights from Stock Market Responses to Corporate Apologies

72 Pages Posted: 13 Aug 2021 Last revised: 8 Aug 2022

See all articles by Sijia Fan

Sijia Fan

Cornell University, Ithaca, New York

Qi Ge

Vassar College - Department of Economics

Benjamin Ho

Vassar College

Lirong Ma

Northwestern University

Date Written: August 7, 2022

Abstract

This paper examines the stock market reaction to corporate apologies. We construct a comprehensive database of corporate apologies issued for major chemical disasters between 1985 and 2017. Results from event studies and cross-sectional regressions suggest that 1) on average there is no significant stock market response after a firm apologizes; but when we allow for heterogeneity in the type of apologies, we find that 2) some apologies are associated with significant abnormal returns. In particular, firms that shift the blame to others consistently experience positive abnormal returns, while firms that admit to making mistakes tend to face negative stock market reactions in the longer-term. Greater media coverage for the chemical spill and the apology is associated with a negative and positive stock market response, respectively. Our findings are consistent with a signaling theory of apologies and help shed light on corporate crisis management and understanding of what makes an effective apology.

Keywords: corporate apologies, chemical disasters, stock returns, crisis management, en- vironmental apologies, reputational risk

JEL Classification: D80, D91, G14

Suggested Citation

Fan, Sijia and Ge, Qi and Ho, Benjamin and Ma, Lirong, Sorry Doesn't Cut It, or Does It? Insights from Stock Market Responses to Corporate Apologies (August 7, 2022). Available at SSRN: https://ssrn.com/abstract=3903412 or http://dx.doi.org/10.2139/ssrn.3903412

Sijia Fan

Cornell University, Ithaca, New York ( email )

New York
United States

Qi Ge

Vassar College - Department of Economics ( email )

124 Raymond Avenue
Poughkeepsie, NY 12604
United States

Benjamin Ho (Contact Author)

Vassar College ( email )

124 Raymond Avenue
Poughkeepsie, NY 12604
United States

Lirong Ma

Northwestern University ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

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