Stock market response to the statement on the purpose of a corporation: A vindication of stakeholder theory

Research question/issue On August 19, 2019, the Business Roundtable (2019) released a statement signed by 181 chief executive officers (CEOs) of well-known US corporations, in which they pledged “a fundamental commitment” to “deliver value all” stakeholders. This study examines stock market reaction this new on purpose corporation. findings/insights Based sample 163 publicly listed companies that pledge, results show investors react positively firm's pledge days surrounding release. The consensus among was robust, characterized low volatility share price post-announcement date. decision these companies, though intended maximize wealth all stakeholders, rather than shareholders alone, carries an opportunity cost. Specifically, decline buybacks firms relative control is observed, embracing stakeholder theory appear undeterred reduction distributions. Theoretical/academic implications provides empirical support that, evolving business environment, must emphasize issues concern customers, employees, non-governmental organizations (NGOs), and government. Failure prioritize may engender public backlash, especially age social media. However, attention stakeholders compatible with focus shareholder performance. Performance suffers when customers leave, workers feel dissatisfied, NGOs call for boycotts, governments levy fines. Corporations seeking increase will need fully embrace concerns. Practitioner/policy shows adopting perspective unlocked would not have been achieved had remained primacy. excess values derive from greater customer loyalty, improved employee motivation, better supplier relations, supportive financiers, maximizing revenue, minimizing costs, and/or yielding higher profits. Shareholders anticipate long-term emphasizing communities, supply chain, shareholders.