To the Ramparts!

Study says stock prices rise and fall with protest coverage

Media coverage of protests against publicly traded corporations affects stock prices. The more coverage, the more the price declines. This is the conclusion of two sociologists, anyway, in a paper to appear in the upcoming issue of Administrative Science Quarterly.

The paper, titled “Social Movements as Extra-institutional Entrepreneurs: The Effect of Protests on Stock Price Returns,” examines New York Times coverage of protests against public corporations, from 1962 to 1990. Co-authors Brayden G. King, of Brigham Young University, and Sarah A. Soule, of Cornell University, observed that stories on protests caused a stock price to fall between 0.4 and 1.0 percent, on average. Longer stories resulted in greater declines. Most of the drop happened the day of the protest and the day after it.

The size of the protest appeared not to matter. Neither did the use of boycotts. “What really matters,” King said in a telephone interview, “is that you’re able to gain media coverage.”

King and Soule’s work is an important reminder that business media coverage has concrete repercussions, and that stock prices especially are sensitive to the whims of business editors.

This is how it works. According to classic stock-market theory, prices change only upon the introduction of new information. Sounds reasonable. But, says King, a question arises: activists tend to mount protests based on already-released information, so why would their actions change a share price?

King and Soule argue that the new information is the news that someone cares about the previously disclosed problem. Investors may already have known that a company was polluting a river (our example), but now they know that someone cares enough to protest it. The study suggests that the market believes that activists’ dissatisfaction could be costly in and of itself.

King says the paper’s concept of protest is “very broad”: at least two people expressing grievance against a target, in public. By “public,” King says he means “physically public,” that protesters “are doing something with their bodies.”

The study includes notable corporate protests from the Vietnam war and civil rights eras against the likes of Dow Chemical Co. (for napalm), Eastman Kodak Co. (for discrimination in hiring) and Polaroid Corp. (in the early seventies, the South African government used Polaroid photos for passes that black South Africans were forced to carry).

More recent data, through 1995, which Soule and fellow researchers are currently working on, will include protests against companies like GAP Inc. and Nike Inc. (over substandard working conditions).

How does the Internet figure into all this? Unclear. Other researchers are looking at the question, and Soule and King’s study—in the interests of data consistency—won’t include online protests.

But King offered some speculation on the Internet age. He called it “very possible” that news coverage “still mediates the influence of protests on investors’ perceptions.” The effect may not be as great, given the multiplicity of news sources available online, says King, but he notes that newspapers are still relevant. What, after all, would the blogging universe be without the actual news that newspapers and wire services produce?

As for this study, the primacy of The New York Times is worth noting. Looking at coverage between 1962 and 1990, the researchers found 342 articles on protests against public corporations. A check of The Wall Street Journal and The Washington Post produced only a small subset of the articles already found in the Times. The Journal covered 6 percent of protests that made it into the Times, and only two that the Times didn’t cover. The Post covered less than 10 percent of the protests covered in the Times, and none that the Times didn’t cover.

So, the Times wins.

Corporation executives often say they don’t pay attention to protests, says Soule. But even so, she continues, those protests do affect stock prices—so maybe they should listen.

And we say, so should the media, whose decisions on what protests to report may influence corporate giants. Protests are clearly more important to the market than the Journal (which covers the markets as a primary beat) thinks they are.
Given what King and Soule tell us in this paper, protests are not merely significant as social actions, they can have an impact on business.

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Elinore Longobardi is a Fellow and staff writer of The Audit, the business-press section of Columbia Journalism Review.