Share prices, media coverage and corporate responsibility

Sometimes the obvious needs proving again. So it can often be with reputation, investor sentiment and your company share price.

In the brief video below, academic Joel Peress, an Associate Professor of Finance at INSEAD, points out that two factors affect share prices.

The first, of course, is business fundamentals. Profits, cashflow, outlook, etc.

The second, he says, is “noise”, fads, what some call “animal spirit”.

These are not related to fundamentals but clearly affect stock price.

Peress has compared NYSE-listed stocks in the US who were featured in print media vs. those not in covered in the print media.

He tracked coverage and then the return on that stock in a twelve month period.

Peress found that companies that were NOT in the media, earned excessive returns to investors.

There are some variables here, of course. And we must remember 12 months is nothing in the long term world of CR.

However, what this research shows is the potential for media coverage, presumably negative, to influence your share price.

The link here with corporate responsibility is clear, given that most modern scandals have a real or perceived ethical dimension.

Less bad coverage = higher share price.

Some of course, might argue that keeping the company head below the parapet on everything is also a viable option given the results of Peress’s research.

The problem with that is that it’s not up to you to decide who writes about you, or when.

That means favourable coverage is your aim.

If you can’t manage that (it’s hard to do consistently) then less bad coverage may well mean a higher share price.

Clearly, well thought through responsible/sustainable business programmes can help here. If you get them right, and present them well.

“This is obvious stuff”, I hear you say.

That’s true, but having an acacemic at a leading business school back up what you think you know, is no bad thing for that meeting with the CFO when budget time comes around.

Here’s the five minute video on Joel Peress’s INSEAD research:

For those among you who like reading academic research on this kind of thing. Try this. And also this.

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