The Value of Apology: How do Corporate Apologies Moderate the Stock Market Reaction to Non-Financial Corporate Crises?

Marie Racine (), Craig Wilson () and Michael Wynes ()
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Marie Racine: University of Saskatchewan
Craig Wilson: University of Saskatchewan
Michael Wynes: Wilfrid Laurier University

Journal of Business Ethics, 2020, vol. 163, issue 3, No 7, 485-505

Abstract: Abstract In a crisis, managers are confronted with a dilemma between their ethical responsibility to respond to victims and their fiduciary responsibility to protect shareholder value. In this study, we use a unique and comprehensive dataset of 223 non-financial crises between 1983 and 2013 to investigate how corporate apologies affect stock prices. Our empirical evidence shows that the stock price response from apologizing depends on the firm’s level of responsibility for the crisis. We find that to protect shareholder value, management needs to match its formal response strategy with the degree of its responsibility for the crisis. Further, failing to match the proper response is harmful to shareholders: Both apologizing when the firm is not directly responsible for the crisis and failing to apologize when the firm is directly responsible reduce shareholder wealth. However, apologizing for a crisis when the firm is directly responsible mitigates losses to shareholder value that arise because of the crisis, as does refraining from apologizing when the firm is not directly responsible.

Keywords: Apology; Crisis management; Event study; Expectancy violation theory; Investor’s behavior; Situational crisis communication theory (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (9)

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DOI: 10.1007/s10551-018-4037-5

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