[Applause] we live in an interesting era where we constantly face with controversial social issues companies so increasingly are trying to stand up to support or oppose these controversial issues many companies change the logo color to support pride months and the LGBTQ community target applied an inclusive bathroom policy in response to North Carolina's bathroom bill more recently Nike launched an ad using Colin Kaepernick as it's a spoke person supporting his protest against police brutality and racial discrimination some other companies also take more conservative position chick-fil-a posted messages and issued announcements to condemn marriage equality ruling but
no matter what the message is or what the stance is there's always a large group of customers that appreciate these actions and support it supportive customers formed lines in front of chick-fil-a to purchase their product to show their appreciation many customers also take it to social media to show their loyalty to Nike and their purchase intentions after the Kaepernick ad but at the same time there is another group of customers that are going to be very upset and angry hashtag boycott to start trending people start videotaping destroy destroying the products of firms on social media
so then the question is why why do firms do this why are they willingly trying to upset a large group of their customers well if you go to marketing 101 marketing Asians were focused on four piece product promotion price and place later on we added more piece to the bunch but still the focus was on increasing market share and increasing profit but in recent years as technology is advancing social media is developing and the consumer knowledge is developing customers expect firms to be more than merely just profit-making machines they expect firms to focus on another
P an important P purpose companies now are expected to have a purpose an image a value system they are expected to use their resources and their influence to advance societal good when companies are started to focusing on the P of purpose the first wave of actions were philanthropic actions where firms would engage and invest on advancing societal good that is widely desirable for example they will hold fundraising for research institutions to find cure for cancer many firms also assign a part of their sales for charities and NGOs these actions are widely favorable almost everyone likes
it we all want cure for cancer supportive customers also appreciate it they increase their loyalty to the firm and the financial performance of the firm will increase but the examples that I gave you at the beginning of this talk are slightly of a different nature here also firms are trying to respond to the P of purpose here also firms are trying to advance societal good but the good is debatable each one of you here have certain beliefs about these issues as I gave you these examples you had some feelings about these firms some negative or
positive emotion but the person sitting right next to you might have the exact opposite emotions and that's the nature of activism the focal issues are controversial or political partisan corporate activism aims to support issues that create polarizing reactions and that's why it's very difficult to predict consequences of activism so I teamed up with a group of my friends and colleagues to find these consequences we study two important stakeholders of the firm's investors and consumers and we ask what happens when firms engage in activism to their firm value and to their sales when firms engage in
activism market divides to two groups angry customers who want to punish the firm happy customers who want to reward the firm studies in psychology in journalism tell us that the angry behavior the angry tweet the alighting shoes on fire videos will bloom larger they grab more time and volume of media and they attract more attention this effect is called negativity bias when you have an equal amount of positive or negative emotions the negative seems to be more important bigger more intense so we also predicted that investors should react negatively to these corporate activism to test
it we collected almost 300 corporate activism events similar to examples that I gave you at the beginning of the talk liberal and conservative from 142 firms during 5 years then we observed the stock price changes of these firms when activism occurs what we saw that was that as the theory predicted we see a half a percent dip in the stock price of the firm's when they engage in activism now you might think half a percent is trivial but for giant companies like Nike with market capital of almost hundred billion dollars this is 500 million dollars
change in their firm value in less than a week this is not that trivial but then are all the corporate activism is going to induce the same reactions does it matter what the issue is that the firm is supporting does it matter if it's liberal or conservative position to answer that I'm going to show you a map this is a heat map that shows investors reactions to activism if the firm is located in one of the states of United States the darker the color is the worse the reaction is the more negative it is now
I want you to look at this and guess if this activism had a liberal or conservative position right as you might have guessed this is a map for liberal corporate activism we can have the same map for conservative positions as well but if a firm is located in California or New York or any other liberal leaning states it is reasonable to assume that they're surrounding their stake holders like their regulators their suppliers many of their local customers and investors will probably have the majority political ideology right they probably are leaning more liberal as well so
if the activism if the firm is supporting a liberal cause like the Kaepernick ad it's more aligned with the belief system of their surrounding so it will get less negative reaction compared to a firm that is a liberal activist located in more service states like Mississippi or Virginia there are many different factors that can affect this reaction of investors to activism in the interest of time I'm going to only focus on one more factor Alliance sometimes firms join forces to conduct activism for example a large number of firms jointly issued in a statement urging Supreme
Court justices to rule for marriage equality similarly in 2017 a lot of firms joined forces with faith communities and with educational centers to condemn travel ban that was against seven Muslim majority countries our research shows that when firms collectively conduct activism the issue seems more normal it seems that there is more support for that issue and also the blame gets divided between the participating firms and therefore you will see a smaller negative reaction to those firms we then focused on the long term effect of activism we focused on the consistent customers of the firm we
collected financial records of firms a quarter before to a quarter after when they engaged in activism it turns out their sales the revenue their cash flow and their net profit increases when they engage in activism it turns out that boycotts die down soon but when customers learn that their belief system is close to the firm they support the firm they increase their loyalty companies actually can create identity brands which means that a group of customer identifies with their system by doing activism so corporate activism seems to be beneficial for firms but this positive financial consequence
introduces a risk that firms use this as another profit seeking strategy so then what should we do what should we as customers do to prevent that we need to hold firms accountable if firms are supporting an issue that we believe is legitimate we need to support them we need to be loyal to them we need to purchase their products but if firms are supporting something that we believe it's detrimental to our society and our societal well-being we need to stop the temporary epic moves that goes viral on social media for one day or two and
then forget we need to go that extra mile we need to pay that extra price to be able to hold these firms accountable so as you leave this session today and you're going to take your phones out and browse on your social media page if you come across a corporate activism or a boycott challenge I hope that you'll look at it with a new perspective and make your next move more meaningful thank you [Applause]
