Investor Political Ideology and Responses to Polarizing Boycotts

Abstract

When public companies engage in practices perceived as ideologically polarizing, whether intentionally or not, they risk triggering social media boycotts, which could negatively impact stock prices. In this study, I ask whether ideological alignment between investors and boycotters (i.e., social media users boycotting a firm) affects investor responses to polarizing boycotts. Using Twitter users posting with cashtags to represent online investors, I determine investor ideology by the number of partisan Twitter accounts they follow and use ChatGPT to classify tweet sentiment. I find that investors express more negative sentiment towards targeted firms when they are ideologically aligned with boycotters. Content analysis of tweets suggests that investors’ assessment of boycotts’ impact can be driven by preferences related to financial value or identity congruence. For market outcomes, I find that polarizing boycotts are associated with a 2.3% decline in equity value over the 60 trading days after they gain social media traction. The negative price impact is stronger when investors ideologically aligned with the boycotters dominate social media discourse. Further, investor disagreement around boycotts increases when online investor ideology is more diverse. My findings show that social media boycotts of polarizing corporate stances have stock market ramifications, and that political ideology can influence how investors perceive such boycotts due to financial and non-financial preferences.

Keywords: social media, boycotts, investor disagreement, investor ideology, political polarization

JEL Classification: G11, G14, G41, M14, M41