What does corporate social advocacy signal? Evidence from boycott participation decisions

Afego, Pyemo N.; Alagidede, Imhotep Paul Article What does corporate social advocacy signal? Evidence from boycott participation decisions Journal of Capital Markets Studies (JCMS) Provided in Cooperation with: Turkish Capital Markets Association Suggested Citation: Afego, Pyemo N.; Alagidede, Imhotep Paul (2021) : What does corporate social advocacy signal? Evidence from boycott participation decisions, Journal of Capital Markets Studies (JCMS), ISSN 2514-4774, Emerald, Bingley, Vol. 5, Iss. 1, pp. 49-68, https://doi.org/10.1108/JCMS-10-2020-0040 This Version is available at: https://hdl.handle.net/10419/313286 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ What does corporate social advocacy signal? Evidence from boycott participation decisions Pyemo N. Afego University of Pretoria, Pretoria, South Africa, and Imhotep P. Alagidede University of The Witwatersrand, Johannesburg, South Africa Abstract Purpose –This paper explores how a firm’s public stand on a social-political issue can be a salient signal of the firm’s values, identity and reputation. In particular, it investigates how boycott participation–conceptualized as a cue of a corporation’s stand on important social-political issues–may affect the stock market valuation of that corporation, as well as how corporations legitimise their stand on the issues. Design/methodology/approach –The authors employ a mixed-methods design that uses both qualitative techniques (content analysis) and quantitative methods (event study methodology) to examine a sample of US firms who participated in a boycott campaign that sought to call attention to issues of hate speech, misinformation and discriminatory content on social media platform Facebook. Findings –Findings from the qualitative content analysis of company statements show that firms legitimise their stand on, and participation in, the boycott by expressing altruistic values and suggesting to stakeholders that their stand aligns not only with organizational values/convictions but also with the greater social good. Importantly, the event study results show that firms who publicly announced their intention to participate in the boycott, on average, earn a statistically significant positive abnormal stock return of 2.68% in the four days immediately after their announcements. Research limitations/implications –Findings relate to a specific case of a boycott campaign. Also, the sample size is limited and restricted to US stocks. The signalling value of corporate social advocacy actions may vary across countries due to institutional and cultural differences. Market reaction may also be different for issues that are more charged than the ones examined in this study. Therefore, future research might investigate other markets, use larger sample sizes and consider a broader range of social-political issues. Practical implications –The presence of significant stock price changes for firms that publicly announced their decision to side with activists on the issue of hate propaganda and misinformation offers potentially valuable insights on the timing of trades for investors and arbitrageurs. Insights from the study also provide a practical resource that can be used to inform organizations’decision-making about such issues. Social implications –Taking the lead to push on social-political issues, such as hate propaganda, discrimination, among others, and communicating their stands in a way that speaks to their values and identity, could be rewarding for companies. Originality/value –This study provides novel evidence on the impact that corporate stances on important social-political issues can have on stock market valuation of firms and therefore extends the existing related research which until now has focused on the impact on consumer purchasing intent and brand loyalty. Keywords Abnormal return, Content analysis, Event study, Boycotts, Corporate social advocacy, Signalling effect Paper type Research paper Corporate social advocacy signal 49 © Pyemo N. Afego and Imhotep P. Alagidede. Published in Journal of Capital Markets Studies. Published by Emerald Publishing Limited. This article is published under the Creative Commons Attribution (CC BY 4.0) license. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this license may be seen at http://creativecommons.org/licences/by/4.0/ legalcode The authors would like to thank two anonymous reviewers and Prof. Guler Aras (editor) for their many valuable comments and suggestions. The current issue and full text archive of this journal is available on Emerald Insight at: https://www.emerald.com/insight/2514-4774.htm Received 7 October 2020 Revised 26 November 2020 28 January 2021 Accepted 7 February 2021 Journal of Capital Markets Studies Vol. 5 No. 1, 2021 pp. 49-68 Emerald Publishing Limited 2514-4774 DOI 10.1108/JCMS-10-2020-0040 1. Introduction Recent years have seen increased scholarly interest in corporate social advocacy (CSA)–i.e. a company’s public stance on often contentious social-political issues (e.g. Coombs and Holladay, 2018;Dodd and Supa, 2014;Rim et al., 2020;Wettstein, and Baur, 2016). Despite this, however, several open questions remain: What are the motives for firms that engage with social-political issues and how do they negotiate their legitimacy to engage with such issues? Also, do these engagements signal a firm’s reputation or organizational values which are then capitalized into its stock price? In this study, we address the above questions by taking an interdisciplinary approach, combining insights from organizational management and identity (reputation signalling, organizational values), corporate communications (message content and framing), financial markets (stock price performance) issues management and social change movements (legitimacy, stakeholder perceptions of a firm’s social activism). The focus lies on building an understanding of how a firm’s public stance on a social-political issue can be a salient signal of the firm’s values, identity and reputation, as well as exploring the extent to which the way that the firm legitimises its stance can influence investor evaluations of the firm, contributing to its stock market value. Empirically, we address these questions by employing data on announcements by US firms to side with activists on the boycott campaign in June 2020 targeted at Facebook, Inc. The boycott campaign, called Stop Hate for Profit by the activist groups that started it, claimed that Facebook was profiting from allowing hate speech and misinformation to spread on its platform and therefore urged companies across America to halt all advertisements on Facebook in order to pressure the company to re-evaluate its policies which are alleged to enable the spread of hateful, misinformed and divisive information (Rawlings, 2020; Walker, 2020). There are several reasons why this campaign offers an appropriate setting in which to explore the relationship between organizations’convictions and values, their decision to engage in CSA (as represented by their boycott of Facebook), and the impact on their financial performance (as measured by short term abnormal returns). First, the issues that the campaign calls attention to–which are the spread of online hate speech, misinformation and discrimination–are viewed as going against the grain of First Amendment protection of free speech, and therefore controversial [1, 2]. Also, the justifications provided by firms for their decisions to join the boycott, and how they were framed, can play an important role in influencing not only stakeholders’perceptions of the firms’actions but also how the value of the actions is determined in the stock market (Benford and Snow, 2002;Pollock and Rindova, 2003;Rhee and Fiss, 2014;Zajac and Westphal, 2004). Accordingly, given the potential for mixed-method research to identify and characterize causal processes and to provide rich understandings of complex and multifaceted phenomenon, such as the role of companies in influencing societal change (Molina-Azorin et al., 2017;Starr, 2014), a mixed-methods design that uses both qualitative techniques (content analysis) and quantitative methods (event study methodology) was employed to address our research questions. Findings from the qualitative content analysis of company statements show that firms legitimise their stance on, and participation in, the boycott by expressing altruistic values and suggesting to stakeholders that their stance aligns not only with organizational values/ convictions but also with the greater social good. In addition, the event study results indicate that firms who publicly announced their intention to participate in the boycott, on average, earn a statistically significant positive abnormal return of 2.68% in the four days immediately after the announcements. Overall, this study makes three contributions to academic research. First, it contributes to the literature on boycotts. Current research on boycotts suggests two main mechanisms JCMS 5,1 50 through which boycotters can hurt the targeted firm. The first is through their ability to divert revenue from the targeted firm (Friedman, 1999), and the second is through their ability to damage the targeted firm’s reputation (Whetten and Mackey, 2002;King, 2008). As many studies have shown, both of these forms of threat–declines in revenues or reputation–can destroy the targeted firm’s market value (e.g. Afego et al., 2020;Ding et al., 2020;Friedman, 1999;Heilmann, 2016;King, 2008;Pruitt and Friedman, 1986;Tomlin, 2019;Whetten and Mackey, 2002). However, while these studies have offered important insights on the impact on the targeted firms, evidence as to whether a boycott action has any impact on the boycotters is lacking. The present study shows that boycott participation, conceptualized as a cue of a corporation’s stand on a social-political issue, can affect the stock price of the boycotter. To the best of our knowledge, this study is among the first to offer empirical evidence that enhances the understanding of the stock price impact of boycott actions from the perspective of boycotters. Second, it contributes to the emergent literature on the association between CSA and firm financial performance. Previous studies have mainly used consumer purchasing intent and brand loyalty as proxy for financial performance, and employed mostly survey or social media data (e.g. Dodd and Supa, 2014,2015;Mikeska and Harvey, 2015;Chatterji and Toffel, 2019;Park and Jiang, 2020)[3]. The present study extends the empirical literature by taking a stock market perspective, and using stock returns as a measure of firm financial performance, to better understand values/identity signalling within the context of CSA actions [4]. Furthermore, by taking an interdisciplinary approach and combining quantitative and qualitative techniques, this study facilitates a richer and more comprehensive understanding of the theory and mechanism(s) by which a firms’s engagement with CSA, and how it is conveyed, may significantly affect the firm’s reputation and, consequently, its stock performance. Finally, this study contributes to the body of work that examines the role of non-financial information on investor valuation of firms (e.g. Amir and Lev, 1996;Lev, 2004;Laskin, 2016; Ragas and Laskin, 2014). More specifically, this study demonstrates that, regarding nonfinancial information items that can be used by investors in their firm valuation decisions, corporate stances on social-political issues matter. The remainder of the paper is organized as follows. Section 2 briefly discusses the literature on CSA, stakeholder engagement, issues management, corporate communications social movements and organizational identity theories, and then proceeds to develop the research hypothesis. Section 3 covers the data and methods used in the empirical analyses. We present the results in Section 4 and discuss their implications in Section 5.Section 6 concludes. 2. Literature review and hypothesis development This literature review introduces the theories on which this study is based. In particular, it discusses that ways that notions of CSA intersect with several strands of the literature, including stakeholder theory (Freeman, 1984;Freeman et al., 2000), organizational identity (Albert and Whetten, 1985;Ashforth and Mael, 1996), signaling theory (Spence, 1974), corporate communications theory (Cornelissen, 2004), social issues management (Hallahan, 2001) and boycott behaviours (King, 2008;Manheim, 2001). 2.1 Corporate social advocacy and stakeholder theory perspective The term CSA was coined by Dodd and Supa (2014,2015) to refer to a company’s public stance on a contentious social-political issue. Importantly, the issue addressed by the company lies outside the normal sphere of its corporate social responsibility (CSR) activities Corporate social advocacy signal 51 and therefore has the potential to elicit conflicting reactions from different stakeholder groups (Dodd and Supa, 2015). We identify two major schools of thought which differ in their orientation about why CSA actions may or may not impact financial performance. On the one hand, the traditional view of “shareholder capitalism”suggests that taking stances on social issues or aligning with social causes (e.g. gender diversity and racial equity) reflects the agency problem whereby firm managers demonstrate self-serving behaviour at the expense of shareholders (Barnea and Rubin, 2010;B enabou and Tirole, 2010;Masulis and Reza, 2015;Ferrell et al., 2016). From this perspective, firm managers who invest in CSA or promote social causes do so to boost their personal image and social reputation among secondary stakeholders such as the media, local politicians and activist groups (Cheng et al., 2014). But such activities are considered “wasteful”and might be interpreted as evidence that management is diverting resources away from “core business”areas at the expense of maximizing shareholder value (Cook and Glass, 2014;Shleifer and Vishny, 1989;La Porta et al., 2000;King 2008). Moreover, engaging in CSA may polarize stakeholders (Coombs and Holladay, 2018;Weinzimmer and Esken, 2016). As a result, market actors may not interpret news about a firm’s involvement in CSA as beneficial to the firm’s future financial prospects and means that engaging in CSA might not improve or would even hurt the firm’s financial performance. Empirically, however, the findings have been mixed. For example, while Kılıç and Kuzey (2016) show that gender leadership diversity initiatives (i.e. the inclusion of female members on company boards) in Turkey enhances the financial performance of firms, Ahern and Dittmar (2012) find significant declines in stock value of Norwegian companies after the mandate requiring 40% of directors to be female took effect. Similarly, Cook and Glass (2011) examined stock price response to being named one of the “Best Companies for Minorities” and found significant decline in stock price of companies that were named for the award. On the other hand, studies at the intersection of ethical consumerism and stakeholder theory (Freeman et al., 2000;H€ orisch et al., 2014) point to the business case for CSA. That is, a commitment to actively engage and align with social causes that affect a broader group of stakeholders can improve financial performance. For example, CSA efforts can positively impact financial performance through consumers’purchasing intent, altruistic values and positive brand perception, all of which may increase the likelihood of consumers choosing the products of businesses that share their values (Dodd and Supa, 2014;Mikeska and Harvey, 2015;Chatterji and Toffel, 2019;Park and Jiang, 2020)[5]. Promoting values that they care about may also help firms to attract employees who are more motivated to perform, in part because of the opportunity to contribute to substantial social change. Next, we discuss the role of organizational identity in influencing CSA behaviours, including how company values, as revealed by a corporation’s public stand on a social issue, may be utilized as an uncomplicated decision tool by investors looking to form impressions about the corporation. 2.2 Organizational identity, social issues management and corporate communication The literature on organizational identity suggests that information highlighting an organization’s distinctive culture (e.g. its policies or practices around gender/racial equality and diversity, parental leave, etc.) is an important means of conveying the organization’s identity (Albert and Whetten, 1985;Ashforth and Mael, 1996;Jones and Murrell, 2001). In this context, CSA provides a potentially veritable medium for a firm to convey its distinctiveness in terms of how it views specific social issues, relative to other firms. From this perspective, the firm’s public stance on an issue can be a salient signal of what the firm values and believes to benefit the greater good. This signal could then be used by individuals who are seeking to form impressions about the firm’s values, identity and character (Jones and Murrell, 2001), which in turn can facilitate their decisions about whether they want to invest in the firm. JCMS 5,1 52 As mentioned earlier, activist-stakeholders are mounting increasing pressure on companies to take a stand on potentially contentious social issues with the goal of contributing to progressive social change (Chatterji and Toffel, 2019). In addition, publics increasingly expect companies to engage with issues of social and political significance (Wettstein and Baur, 2016), such as reforming systems that sustain different forms of inequalities or inequities in the context of society. As a result, many firms are expending significant resources in an attempt to positively affect social change, in part because it allows them to gain legitimacy from diverse stakeholder groups (Coombs and Holladay, 2018;Rim et al., 2020) and, at the same time, enhances their overall reputation within the market. Central to the role that corporations can play in influencing social change is the concept of issues management (Sommerfeldt and Yang, 2017). Broadly defined, issues management encapsulates an organization’s efforts to monitor its environment and communicate with publics about matters of public contention in ways that generate an advantageous outcome for the organization (Bowen, 2004;Hallahan, 2001;Sommerfeldt and Yang, 2017). As a strategy, issues management is predicated on the notion that corporations can and should actively contribute to shaping public policy and that doing so could benefit the organization and its stakeholders (Crable and Vibbert, 1985;Sommerfeldt and Yang, 2017;Heath and Palenchar, 2009). Critical to the success of issues management strategy, however, is the role of framing (Hallahan, 2001). The role of (message) framing in collective action efforts, such as boycotts, is to define the issue in need of change, point out who is to blame, create an alternative course of action, and to encourage others to act together (Benford and Snow, 2000; Sommerfeldt and Yang, 2017). Indeed, previous research has suggested that corporations can use communication in specific ways to change attitudes towards controversial social issues and, in doing so, influence many aspects of society (Parcha and Kingsley Westerman, 2020). Next, we explain our own connections of boycott behaviours with CSA, arguing that boycott participation can be an important cue of a corporation’s stand on a contentious social issue which in turn can contribute to the corporation’s stock market value. 2.3 Social change movements, boycott behaviours and stock market performance Social change movements are groups of individuals banded together, either formally or informally, to pursue or resist social change (Edwards and McCarthy, 2004;Sommerfeldt and Yang, 2017). As Gopaldas (2014) argued, social change actors, such as activists, generate sentiments about the values that they stand for or that they believe can benefit society (e.g. gender diversity, animal rights, environmental protection, transgender rights etc.) Corporations and their brands may then use such sentiments to engage consumers, and ultimately, increase their sales (Gopaldas, 2014). Boycotts are a classic tactic for social change movements (Manheim, 2001) and are widely used by activists trying to persuade corporate targets to adopt some change in practice or policy (King, 2008;Manheim, 2001). Targeting corporations through this means give activists a medium to directly address their grievances as well as influence a company to amend an undesirable policy or practice (King and Soule, 2007;Lenox and Eesley, 2009;King and McDonnell, 2012). By making negative claims about the corporation, activists’attack not only tarnishes the image and reputation but also threatens the corporation’s legitimacy (Whetten and Mackey, 2002;King, 2008;McDonnell and King, 2013;Ding et al., 2020). As a result, firms are increasingly recognizing the importance of communicating positive information about their social change advocacy efforts as a way of gaining legitimacy from diverse stakeholder groups, including activist organizations (Coombs and Holladay, 2018;Rim et al., 2020). Thus far, the literature that examines the stock price effects of boycotts focuses mostly on the ability of boycotters to impose sufficient financial and reputational harm on the targeted firm and ultimately depress its share price (e.g. Pruitt and Friedman, 1986;Tomlin et al., 2019). Corporate social advocacy signal 53 In contrast, as a point of departure, we argue that boycott participation can be a cue of a corporation’s public stance on a socially-charged issue that can affect stakeholder perceptions of the corporation’s stance which in turn can affect the corporation’s financial outcomes. We suggest that the actions of corporations, as represented by their boycott of Facebook, are not meant merely to pressure the firm into amending its policies but are also intended to be seen as a form of CSA, i.e. to publicly communicate their stance and support for positive action against hate speech, misinformation and discrimination in society. Therefore, when perceived as a form of CSA, boycott participation announcements by firms can generate positive stakeholder perceptions which are associated positively with the firm’s short-term stock performance. In light of all of the above, and building on the importance of organizational identity in motivating social advocacy behaviours of companies (Eilert and Nappier Cherup, 2020), as well as the role of reputation signalling and corporate communication, we argue that social advocacy-based signals (i.e. a firm’s publicly announced commitment to side with activists in the fight against hateful, misinformed and divisive information in society), and how they are conveyed, will be interpreted by signal receivers (i.e. investors), thereby impacting share price. More specifically, from press releases regarding a corporation’s commitment to contributing to positive social change (through a boycott action), investors and traders can learn that a firm is taking the lead to push on societal issues (e.g. on racial inequality, gender inequality, sexual orientation discrimination and other forms of inequalities or inequities in the context of society). Such information highlighting an organization’s stand on these issues can be used to signal to market actors the organization’s ideologies and virtues related to enhancing or restoring fairness for disadvantaged groups, allowing the organization to build, enhance or defend its reputation based on its projected corporate identity (Ashforth and Mael, 1996;Cartabuke et al., 2019;Jones and Murrell, 2001). Thus, to understand how a firm communicates its stand on contentious social issues, as well as to understand the motives, values and beliefs underlying the decision to get involved, including how the firm legitimises its involvement, we employ a qualitative content analysis of company statements that directly reference the issues around the Facebook boycott. In addition, in regard to a public announcement of an event revealing new information about a firm’s CSA efforts, we offer the hypothesis that: announcement of a firm’s engagement with CSA, as represented by their boycott of Facebook over its alleged promotion of hate speech and discrimination, will positively impact the firm’s reputation, as well as its short term stock market performance. This is tested using the event study methodology which is described in the next section alongside the methodology of content analysis. 3. Sample and methods 3.1 Sample and firm characteristics Our sample period starts on June 17, 2020, when the coalition of civil rights and activist groups in America launched the Stop Hate for Profit advertiser boycott campaign targeted at Facebook and extends to July 2, 2020, when the actual boycott action began. Although a large number of small, privately-owned businesses joined the campaign, we focus mainly on publicly traded companies, given that our objective is to understand whether the stock market reacts to a firm’s decision to join the boycott. Consequently, our universe is limited to companies listed on the NASDAQ and NYSE. Manual web searches were conducted for announcements by companies to join the boycott [6]. We retrieved a modest sample of 27 announcement events that occurred during this period. Table 1 provides a snapshot of the sample companies. As can be deduced, majority of the companies belong to the consumer goods sector, as defined by the Bloomberg Industry Classification Standard (BICS). Media reports suggest that the advertising budget JCMS 5,1 54 on Facebook varies substantially among companies that supported the boycott. However, among the sample companies examined in this study, Unilever and Verizon–with an estimated spend of $42 m and $23 m respectively–were ranked among the top 100 advertisers on Facebook in 2019 [7]. A variety of media channels was used to announce, for the first time, company decisions to join the boycott. These include press releases on company websites, official Twitter accounts, LinkedIn pages and blogs. For announcement days that fall on a weekend, we take the following (trading day) Monday to be the announcement day. 3.2 Qualitative content analysis Content analysis is a methodology used to make valid or replicable inferences from text (Krippendorf, 2004). The methodology is used in a variety of fields to identify and analyse themes present in organizational statements (Creamer and Ghoston, 2013). In the context of this study, the methodology allows us to identify the motives, values and beliefs endorsed by corporations as it pertains to their involvement in the issues that the boycott sought to call attention to. As noted, previous research suggests that activists generate sentiments about the values they stand for or the type of society they want (Gopaldas, 2014). Corporations then integrate such values into their brand identity propositions or existing policies and, with that, engage investors, consumers, employees and other stakeholders, ultimately enhancing their legitimacy (Coombs and Holladay, 2018;Gobe, 2001;Gopaldas, 2014;Rim et al., 2020). Company Industry sector Announcement date Adidas Consumer discretionary 6/29/2020 Bausch Health Companies Healthcare 6/30/2020 Best Buy Consumer discretionary 6/28/2020 Broadmark Realty Capital Financials 6/30/2020 Clorox Consumer staples 6/29/2020 Coca-Cola Consumer staples 6/26/2020 Colgate-Palmolive Consumer staples 6/29/2020 CVS Health Corp Healthcare 6/29/2020 Denny’s Corp Consumer discretionary 6/29/2020 Diageo Consumer staples 6/30/2020 Dunkin Brands Corp Consumer discretionary 7/1/2020 Ford Motor Company Consumer discretionary 6/29/2020 Honda Motor Company Consumer discretionary 6/26/2020 HP Technology 6/29/2020 JM Smucker Company Consumer staples 6/30/2020 Levi Strauss Consumer discretionary 6/26/2020 Microsoft Technology 6/30/2020 Pfizer Healthcare 6/29/2020 Sony Corp. of America Technology 7/2/2020 Starbucks Consumer discretionary 6/29/2020 Suntory Beverage &Food Consumer staples 6/28/2020 Target Corp Consumer staples 7/1/2020 The Hershey Company Consumer staples 6/26/2020 Unilever Consumer staples 6/26/2020 Upwork Communications 6/19/2020 Verizon Communications 6/25/2020 Vertex Pharmaceuticals Healthcare 6/29/2020 Walgreens Boots Alliance Consumer staples 7/1/2020 Table 1. Sample of US-listed firms who publicly announced their decision to join the boycott campaign targeted at Facebook in June 2020 over issues of hate speech and misinformation on its platform Corporate social advocacy signal 55 Studies also suggest that the role of framing in collective action efforts, such as boycotts, is to first define the issue in need of change, point out who is to blame, create an alternative course of action, and finally encourage others to act together (Benford and Snow, 2000;Sommerfeldt and Yang, 2017). Thus for each firm in our sample, we identified company statements adjoined to the boycott participation announcements and considered what the key motives or messages (values and beliefs) were and how they were framed. We then perform a content analysis of company statements to understand how firms communicated their decisions to participate in the boycott, the motives underlying their decisions to get involved, as well as how they legitimised their involvement. 3.3 Event study methodology In the context of CSA actions, boycott participation decisions can be a relevant source of new information for a firm’s stakeholders which can alter the level of resource support and legitimacy the firm enjoys (Conaway and Wardrope, 2010;Patelli and Pedrini, 2014)–and in turn influence how the value of the firm is determined in the stock market. Importantly, to the extent that a firm’s decision to participate in the boycott constitutes an unexpected news about the firm, an event study can provide reasonable clues of a causal relation between the firm’s decision and its share price performance (Atanasov and Black, 2016;Sorescu et al., 2017). Thus, we conduct an event study around the boycott participation announcement dates to assess the potential impact on stock prices of announcing firms. The event study methodology has been used to analyse the impact of boycotts on targeted firms’stock prices (Heilmann, 2016;Tomlin, 2019), and is the ideal means, we believe, for testing whether CSA can serve a signalling function for individuals evaluating a firm for an investment decision because it is the typical method used to assess the impact of various firm actions on firms’ financial performance. In addition, the methodology is ideally suited for this research because it is robust to limited sample sizes (Ait-Sahalia et al., 2012). In this study’s context, events are announcements made by firms about their intention to side with activists on the boycott campaign. To assess the event’s impact, one needs a measure of the normal return, abnormal return and cumulative abnormal return. Normal return is defined as the expected return if the event did not take place. The abnormal return is the actual ex-post return of the stock over the event window minus the normal return of the stock over the event window. Cumulative abnormal return is the sum of abnormal returns, which allows us to draw inferences about the price effects of boycott participation announcements over several intervals. Two models, the constant mean return model and the market model, are often used for calculating the normal return. However, when daily data are used, the variance of the abnormal return is not reduced by much by choosing one or the other model (Campbell et al., 1997). Therefore, following Ju et al. (2014), we use the constant mean return model, which assumes that the mean return of a given security is constant over time. The normal return for each firm iwas calculated using the constant mean return model as Eq. (1): b Ri τ ¼ μ iþζi τ (1) where b Ri τ is the normal return for firm iat period τ ; μ iis the mean return for securityi calculated as the average return during the 200-day estimation window (210, 11) and ζi τ is the disturbance term. To determine the market reaction for each firm that announced a decision to join the boycott, the abnormal returns (AR) were calculated as the difference between the observed returns and the normal returns as Eq. (2): ARi τ ¼Ri τ b Ri τ (2) JCMS 5,1 56 market reactions might be different for issues that are more socially charged than the ones examined in this study, future research might do well to consider how market expectations are affected by corporate stances on more contentious social-political issues. Finally, another limitation to the study, which we hope will be addressed in future work, is with regard to the question of whether stock price reaction occurred only for firms that publicly expressed their commitment to the boycott against Facebook. We acknowledge that focussing only on firms that take the same stance on issues of hate speech, misinformation and discrimination, our sample of event firms does not capture the full corpus of market reaction for this boycott campaign and ideally one would like to compare the stock price behaviour of companies that participated in the boycott with that of companies that did not participate in the boycott. Methodologically, this would be analogous to expanding the asset pricing model to allow for the use of matched controls from non-event firms to determine whether discernible differences in market reactions exist between firms that joined the boycott and those that did not. Thus, we expect future work will tap into methodologies that involve treatment and control samples, in order to deepen the scope of our understanding of stock market response to CSA actions. Notes 1. See The Verge,“Facebook’s CEO rallies people around the First Amendment”, 17 October, 2019, available at https://www.theverge.com/2019/10/17/20919223/mark-zuckerberg-facebook-speechlive-politics-threats-free-expression (accessed on 17 September 2020) 2. See The Guardian,“Facebook’s commitment to free speech will “piss people off”, Zuckerberg says’1 February, 2020, available at https://www.theguardian.com/technology/2020/feb/01/facebookpolitical-ads-zuckerberg (accessed on 16 September 2020). 3. Dodd and Supa (2014) examine how CSA impacts organizational financial goals via consumer purchase intentions. Their study, which focused on corporations that had taken public stances on issues such as health care reform, emergency contraception and same-sex marriage, concludes that CSA for these issues significantly impacts consumer purchasing intention and brand perception and, therefore, affects the likelihood of consumers choosing the products of businesses that share their views. Similarly, Mikeska and Harvey (2015) and Chatterji and Toffel (2019) document evidence of changes in consumer purchasing intention towards the product a CEO represents after that CEO makes public their social and political beliefs on climate change, human rights and same-sex marriage. Park and Jiang (2020), using online surveys, find that CSA engagement affects the way individuals in the social media environment view a corporation as well as their loyalty to the brand the corporation represents. 4. The event study methodology is the typical method used to identify the change in share price that is directly attributable to a signal generated by various firm actions over the short term (Bash and Alsaifi, 2019;Cook and Glass, 2014). The methodology therefore is well-suited for testing whether CSA can serve a signaling function for investment decision-making. 5. Consistent with this view, a recent survey found that 87% of American consumers will purchase a product from a company because that company advocated for an important social issue that they cared about (Cone, 2017). Another study found that 88% of Americans believe firms have the power to effect social change (Global Strategy Group, 2016, p. 2). 6. A Google web search was conducted for news articles and public announcements of companies’ endorsements of the boycott. The key words for the search included: “2020 Facebook advertiser boycott”and “stop hate for profit campaign”. We also manually collected and reviewed press releases and other public statements from company websites and official social media handles, which were then merged with the Google search results in order to determine the precise date that each announcement was made public for the first time. 7. See CNN,“The hard truth about the Facebook ad boycott: Nothing matters but Zuckerberg”,26June, 2020, availableathttps://edition.cnn.com/2020/06/26/tech/facebook-boycott/index.html(accessed on 20 Corporate social advocacy signal 63 November, 2020). Also see Pathmatics Blog,“Facebook Advertising Boycott: Political Ad and Free Speech Issues”, 29 July, 2020, available at https://www.pathmatics.com/blog/brandsboycottfacebook (accessed on 20 November, 2020). 8. 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