Ryan Flugum and Matthew Souther:
Our study examines what factors lead managers to cite stakeholder objectives when explaining their firm’s performance. We analyze all manager communications during the two weeks following an earnings release, including on analyst calls, in news coverage, and during investor and analyst conferences. We look for managers that explicitly mention that their firm considers the interests of stakeholders as opposed to shareholders, citing terms such as “stakeholder value,” “the benefit of stakeholders,” or “stakeholder interests.”
Based on an analysis of public communications around earnings announcements, we find that managers are 34 to 43 percent more likely to cite stakeholder value maximization during periods following earnings announcements that fall short of market expectations. This finding is consistent with concerns that the inability to measure stakeholder value may reduce managers’ accountability for firm performance. ...
Throughout all of our tests, our findings are uniformly consistent with the concerns around stakeholder objectives; managers push to be evaluated by nebulous stakeholder-based standards when the more traditional (and easily measured) shareholder standards are unfavorable. Managers therefore become less accountable for firm performance as measured by traditional, market value-based metrics. In essence, the stakeholder focus becomes an excuse to explain away poor earnings performance while providing no way to measure whether stakeholders are actually receiving value.
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