New study finds that partisan corporate tweets have a negative impact on share prices
I’m sure everyone reading this has had some experience of a senior management figure saying something they shouldn’t have, to the wrong person or at the wrong time.
I’m also sure that everyone worries that such off-color remarks could negatively impact their company’s share price.
Well, I’m afraid to say those fears may well be founded, as new research finds that politically partisan corporate speech – particular on X (formerly Twitter) – is often followed by negative, abnormal stock returns.
That’s according to a Harvard Business School working paper titled ‘Partisan Corporate Speech’, published earlier this month and written by William Cassidy and Elisabeth Kempf.
The authors examined tweets made by Republican or Democratic politicians in the US to identify ‘highly partisan phrases’, before comparing this to all tweets sent by S&P 500 companies with verified X accounts between 2012 and 2022.
Not only did they find that partisan corporate speech had grown rapidly in that decade, with those favoring Democratic-leaning language growing particularly quickly, but that companies often experienced an ‘abnormal’ negative stock return immediately afterwards.
The authors add: ‘The market response varies significantly with the degree of stakeholder alignment, with partisan tweets that align with the political preferences of investors exhibiting a relatively more positive stock price reaction.’
In other words, if your corporate X account puts out a political tweet that does not align with your shareholder base, your share price will suffer accordingly.
Though the authors don’t make any recommendations for IR teams coaching their senior management or communications staff, they do recognize that they were not able to quite establish causality between political speech and the resulting stock price reactions.
They also add that it is not clear ‘whether partisan corporates speech has financial consequences beyond short-term stock price reactions’, suggesting that future research may examine the impact such statements make on customer loyalty, employee retention or a company’s long-term reputation, all of which may have a significant future impact.
The research also relies on data prior to 2023, which means that there is little analysis of the anti-ESG or anti-DEI movements and their impact on corporate speech.
Still, it makes for interesting reading – and for careful consideration by IR teams. Though perhaps you didn’t need another good reason to keep your politically minded CEO away from social media…
What do you make of the research? Let us know, either via email on [email protected], or on LinkedIn.
