Influencing Managers to Change Unpopular Corporate Behavior through Boycotts and Divestitures

Wallace N. Davidson · Dan L. Worrell · Abuzar M. A. Eljelly

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Corporate Social Responsibility Reporting Corporate Finance and Governance Political Influence and Corporate Strategies

Abstract

In this research, the authors present a model that demonstrates that motivating managers to change unpopular or irresponsible corporate behavior may be required when the stakeholders desire such a change. Using agency theory, they then test part of the model and demonstrate why it may be necessary for an organized protest to impact on share prices before managers choose to change the behavior. Investors' reactions to announcements of product boycotts and stock divestitures made over the 23-year period 1969-1991 were examined. Announcements about boycotts were associated with significant negative market reactions, whereas divestiture announcements resulted in no significant market responses. From a pure stock market perspective, boycotts appear to be a more effective tool in influencing managers to change a company's behavior.

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References

1970EFFICIENT CAPITAL MARKETS: A REVIEW OF THEORY AND EMPIRICAL WORK*1965The Logic of Collective Action 1966The Logic of Collective Action.1980Agency Problems and the Theory of the Firm 1996Production, Information Costs and Economic Organization 1933The Modern Corporation and Private Property 1990Performance Pay and Top-Management Incentives 1969The Adjustment of Stock Prices to New Information

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