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

Sijia Fan (), Qi Ge, Benjamin Ho and Lirong Ma

Journal of Economic Behavior & Organization, 2023, vol. 205, issue C, 68-86

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; Environmental apologies; Reputational risk (search for similar items in EconPapers)
JEL-codes: D80 D91 G14 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:205:y:2023:i:c:p:68-86

DOI: 10.1016/j.jebo.2022.11.004

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