IDEAS home Printed from https://ideas.repec.org/a/eee/jeborg/v205y2023icp68-86.html
   My bibliography  Save this article

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

Author

Listed:
  • Fan, Sijia
  • Ge, Qi
  • Ho, Benjamin
  • Ma, Lirong

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.

Suggested Citation

  • Fan, Sijia & Ge, Qi & Ho, Benjamin & Ma, Lirong, 2023. "Sorry Doesn't Cut It, or Does It? Insights from Stock Market Responses to Corporate Apologies," Journal of Economic Behavior & Organization, Elsevier, vol. 205(C), pages 68-86.
    • Handle: RePEc:eee:jeborg:v:205:y:2023:i:c:p:68-86
    DOI: 10.1016/j.jebo.2022.11.004
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0167268122004085
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jebo.2022.11.004?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Marie-Aude Laguna & Gunther Capelle-Blancard, 2010. "How does the stock market respond to petrochemical disasters?," Post-Print halshs-00696984, HAL.
    2. Schniter, Eric & Sheremeta, Roman M. & Sznycer, Daniel, 2013. "Building and rebuilding trust with promises and apologies," Journal of Economic Behavior & Organization, Elsevier, vol. 94(C), pages 242-256.
    3. Fehr, Ryan & Gelfand, Michele J., 2010. "When apologies work: How matching apology components to victims' self-construals facilitates forgiveness," Organizational Behavior and Human Decision Processes, Elsevier, vol. 113(1), pages 37-50, September.
    4. Shahin Rasoulian & Yany Grégoire & Renaud Legoux & Sylvain Sénécal, 2017. "Service crisis recovery and firm performance: insights from information breach announcements," Journal of the Academy of Marketing Science, Springer, vol. 45(6), pages 789-806, November.
    5. Daryl Koehn & Maria Goranova, 2018. "Do Investors See Value in Ethically Sound CEO Apologies? Investigating Stock Market Reaction to CEO Apologies," Journal of Business Ethics, Springer, vol. 152(2), pages 311-322, October.
    6. Fama, Eugene F. & French, Kenneth R., 2015. "A five-factor asset pricing model," Journal of Financial Economics, Elsevier, vol. 116(1), pages 1-22.
    7. Capelle-Blancard, Gunther & Laguna, Marie-Aude, 2010. "How does the stock market respond to chemical disasters?," Journal of Environmental Economics and Management, Elsevier, vol. 59(2), pages 192-205, March.
    8. Benjamin Ho & Elaine Liu, 2011. "Does sorry work? The impact of apology laws on medical malpractice," Journal of Risk and Uncertainty, Springer, vol. 43(2), pages 141-167, October.
    9. Benjamin Ho, 2012. "Apologies as Signals: With Evidence from a Trust Game," Management Science, INFORMS, vol. 58(1), pages 141-158, January.
    10. Basil Halperin & Benjamin Ho & John A List & Ian Muir, 2022. "Toward An Understanding of the Economics of Apologies: Evidence from a Large-Scale Natural Field Experiment," The Economic Journal, Royal Economic Society, vol. 132(641), pages 273-298.
    11. Fama, Eugene F & French, Kenneth R, 1992. "The Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 47(2), pages 427-465, June.
    12. Mansur Khamitov & Yany Grégoire & Anshu Suri, 2020. "A systematic review of brand transgression, service failure recovery and product-harm crisis: integration and guiding insights," Journal of the Academy of Marketing Science, Springer, vol. 48(3), pages 519-542, May.
    13. repec:dau:papers:123456789/3187 is not listed on IDEAS
    14. Ben Gilbert & Alexander James & Jason F. Shogren, 2018. "Corporate apology for environmental damage," Journal of Risk and Uncertainty, Springer, vol. 56(1), pages 51-81, February.
    15. Holger Roschk & Susanne Kaiser, 2013. "The nature of an apology: An experimental study on how to apologize after a service failure," Marketing Letters, Springer, vol. 24(3), pages 293-309, September.
    16. A. Craig MacKinlay, 1997. "Event Studies in Economics and Finance," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 13-39, March.
    17. Kim, Peter H. & Dirks, Kurt T. & Cooper, Cecily D. & Ferrin, Donald L., 2006. "When more blame is better than less: The implications of internal vs. external attributions for the repair of trust after a competence- vs. integrity-based trust violation," Organizational Behavior and Human Decision Processes, Elsevier, vol. 99(1), pages 49-65, January.
    18. Robert D. Klassen & Curtis P. McLaughlin, 1996. "The Impact of Environmental Management on Firm Performance," Management Science, INFORMS, vol. 42(8), pages 1199-1214, August.
    19. Marie Racine & Craig Wilson & Michael Wynes, 2020. "The Value of Apology: How do Corporate Apologies Moderate the Stock Market Reaction to Non-Financial Corporate Crises?," Journal of Business Ethics, Springer, vol. 163(3), pages 485-505, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hornsey, Matthew J. & Chapman, Cassandra M. & La Macchia, Stephen & Loakes, Jennifer, 2024. "Corporate apologies are effective because reform signals are weighted more heavily than culpability signals," Journal of Business Research, Elsevier, vol. 177(C).
    2. Ohlrogge, Fynn & Hardies, Kris & Claeys, An-Sofie, 2024. "Investor reactions to apologies for financial misconduct," Accounting, Organizations and Society, Elsevier, vol. 112(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lyon, Thomas & Lu, Yao & Shi, Xinzheng & Yin, Qie, 2013. "How do investors respond to Green Company Awards in China?," Ecological Economics, Elsevier, vol. 94(C), pages 1-8.
    2. Wang, Yanbing & Delgado, Michael S. & Khanna, Neha & Bogan, Vicki L., 2019. "Good news for environmental self-regulation? Finding the right link," Journal of Environmental Economics and Management, Elsevier, vol. 94(C), pages 217-235.
    3. Gunther Capelle-Blancard & Aurélien Petit, 2019. "Every Little Helps? ESG News and Stock Market Reaction," Journal of Business Ethics, Springer, vol. 157(2), pages 543-565, June.
    4. Giuliana Birindelli & Helen Chiappini, 2021. "Climate change policies: Good news or bad news for firms in the European Union?," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 28(2), pages 831-848, March.
    5. Seongtae Kim & Sangho Chae, 2022. "Shareholder Value Effects of Ethical Sourcing: Comparing Reactive and Proactive Initiatives," Journal of Business Ethics, Springer, vol. 179(3), pages 887-906, September.
    6. Yalin Zhou & Jing Cao & Yujia Feng, 2021. "Stock Market Reactions to Pollution Information Disclosure: New Evidence from the Pollution Blacklist Program in China," Sustainability, MDPI, vol. 13(4), pages 1-13, February.
    7. Marie Racine & Craig Wilson & Michael Wynes, 2020. "The Value of Apology: How do Corporate Apologies Moderate the Stock Market Reaction to Non-Financial Corporate Crises?," Journal of Business Ethics, Springer, vol. 163(3), pages 485-505, May.
    8. Jose Manuel Feria-Dominguez & Enrique Jimenez-Rodriguez & Ines Merino Fernandez-Galiano, 2013. "Isolating the corporate reputational risk in environmental oil spill disasters," Working Papers 13.02, Universidad Pablo de Olavide, Department of Financial Economics and Accounting (former Department of Business Administration).
    9. X. Xu & S. Zeng & C. Tam, 2012. "Stock Market’s Reaction to Disclosure of Environmental Violations: Evidence from China," Journal of Business Ethics, Springer, vol. 107(2), pages 227-237, May.
    10. José M. Feria-Domínguez & Enrique Jiménez-Rodríguez & Inés Merino Fdez-Galiano, 2016. "Financial Perceptions on Oil Spill Disasters: Isolating Corporate Reputational Risk," Sustainability, MDPI, vol. 8(11), pages 1-15, November.
    11. Corbet, Shaen & Larkin, Charles & McMullan, Caroline, 2020. "The impact of industrial incidents on stock market volatility," Research in International Business and Finance, Elsevier, vol. 52(C).
    12. Amal Aouadi & Sylvain Marsat, 2018. "Do ESG Controversies Matter for Firm Value? Evidence from International Data," Journal of Business Ethics, Springer, vol. 151(4), pages 1027-1047, September.
    13. Juan Murguia & Sergio Lence, 2015. "Investors’ Reaction to Environmental Performance: A Global Perspective of the Newsweek ’s “Green Rankings”," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 60(4), pages 583-605, April.
    14. Huo, Xiaolin & Jiang, Dayan & Qiu, Zhigang & Yang, Sijie, 2022. "The impacts of dual carbon goals on asset prices in China," Journal of Asian Economics, Elsevier, vol. 83(C).
    15. Sandrine Boulerne & Jean-Philippe Lafontaine & Bruno Pecchioli, 2016. "Fukushima, quel impact sur les entreprises françaises cotées de la filière de production d'électricité d'origine nucléaire ?," Post-Print hal-01902423, HAL.
    16. Ye, Dezhu & Liu, Shasha & Kong, Dongmin, 2013. "Do efforts on energy saving enhance firm values? Evidence from China's stock market," Energy Economics, Elsevier, vol. 40(C), pages 360-369.
    17. El Ouadghiri, Imane & Guesmi, Khaled & Peillex, Jonathan & Ziegler, Andreas, 2021. "Public Attention to Environmental Issues and Stock Market Returns," Ecological Economics, Elsevier, vol. 180(C).
    18. Ben Gilbert & Alexander James & Jason F. Shogren, 2018. "Corporate apology for environmental damage," Journal of Risk and Uncertainty, Springer, vol. 56(1), pages 51-81, February.
    19. Elisa Navarra, 2022. "Stock Market Response to Firms’ Misconduct," Working Papers ECARES 2022-40, ULB -- Universite Libre de Bruxelles.
    20. Laure, de Batz, 2020. "Financial crime spillovers. Does one gain to be avenged?," Journal of Economic Behavior & Organization, Elsevier, vol. 173(C), pages 196-215.

    More about this item

    Keywords

    Corporate apologies; Chemical disasters; Stock returns; Crisis management; Environmental apologies; Reputational risk;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jeborg:v:205:y:2023:i:c:p:68-86. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jebo .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.