The Triple Bottom Line Blog

Here's a noteworthy item from a source most of our readers probably don't track--the online edition of the Columbia Journalism Review. Seems a couple of sociologists have published a study showing that coverage of protests against specific corporations in The New York Times has an adverse effect on stock prices:

Co-authors Brayden G. King, of Brigham Young University, and Sarah A. Soule, of Cornell University, observed that stories on protests caused a stock price to fall between 0.4 and 1.0 percent, on average. Longer stories resulted in greater declines. Most of the drop happened the day of the protest and the day after it.

The size of the protest appeared not to matter. Neither did the use of boycotts. "What really matters," King said in a telephone interview, "is that you're able to gain media coverage."

On one level, this might seem like a dog-bites-man story: Isn't it obvious that bad publicity hurts stock valuation? But actually that isn't obvious at all:

According to classic stock-market theory, prices change only upon the introduction of new information. Sounds reasonable. But, says King, a question arises: activists tend to mount protests based on already-released information, so why would their actions change a share price?

King and Soule argue that the new information is the news that someone cares about the previously disclosed problem. Investors may already have known that a company was polluting a river (our example), but now they know that someone cares enough to protest it. The study suggests that the market believes that activists' dissatisfaction could be costly in and of itself.

There is, then, a measurable economic cost, levied by the marketplace, on companies that disdain "sustainable" business practices--to the extent that "sustainability" can be correlated with positive, protest-free relationships with stakeholders. Conversely, companies that consciously pursue friendly stakeholder relationships may be able to avoid the "protest penalty" and thereby gain at least a small edge on their competitors.

One last point: The professors' study is based on data compiled from 1962 to 1990. If the effect they discovered existed throughout the period, it suggests that the influence of mass media on financial markets is nothing new and predates the Internet, Bloomberg, MSNBC, and CNN.

It may be that organizations like Greenpeace and PETA are using protests and the threat of protests as anti-corporate weapons more deliberately today than was done in the past, but the weapons themselves have been making an impact for a long time.

Labels: Brayden G. King, Finance and Investment, Measurement, Sarah A. Soule