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For the Sake of Your Stock Price, Don’t Take a Boycott for Granted

Brayden King is an Assistant Professor of Management and Organizations at the Kellogg School of Management.

The day of a boycott taking aim at a firm’s bottom line is past. Now the target is reputation. Research by the Kellogg School’s Brayden King reveals new information about the targets of boycotts and the surprisingly large impact on their stock price.

New research exploring the nature and impact of corporate boycotts reveals the overriding importance of a firm’s reputation and national media coverage in shaping the result. It finds that the most effective boycotts are likely to be those launched against some of the least likely targets; and that when a boycott receives national media coverage, the stock price of the target will go down by an average of .7 percent for each day of national coverage. The research, done by Brayden King, an assistant professor of Management and Organizations at Northwestern University’s Kellogg School, was published in the November issue of the journal Social Problems. The study represents one of the first systematic analyses of a large number of boycotts.

King studied 133 boycotts launched from 1990 through 2005 that caught the attention of national media. In all, 177 firms were targeted. Such boycotts are surprisingly effective, with about 25 percent generating a concession from the target company. King said that the concessions came even though research has shown that “most boycotts are not very effective in getting consumers to change their behavior.”

Central to his research was this question: “If boycotts do not change consumer behavior, then why do they bring about change?” His search for the answer to that question provides new information about central elements of boycotts, including the role of media, the reputation of the target, the type of organization launching the boycott, and even the role of demonstrations and celebrity spokespeople.

The Role of Media in a Boycott
The research found that when the national media paid attention to a boycott, the impact on the target firm’s stock price was immediate and significant. The impact of the initial announcement of the boycott was an average decline of .5 percent. For each subsequent day on which a national newspaper wrote about the boycott, the price declined an average of .7 percent. He arrived at the number through a careful statistical analysis of the stock price of each firm in his study, starting with the price on the day the boycott was announced and continuing for each day there was a story in the national press.

The Importance of Reputation
In his work, King looked at where each firm involved in a boycott stood on Fortune magazine’s “Most Admired” list. He found that boycotts launched against firms with a stellar reputation were initially unaffected, but since they were such unusual targets, they quickly attracted a higher level of media attention than boycotts against firms with a low reputation or no ranking at all. Because the highly admired firms are seen as putting more value on the link between their reputations and profitability, they had a stronger incentive to resolve the boycott issues quickly.

King said the research reveals a clear link between reputation and media coverage. Boycotted firms with a high reputation ranking generated 4.4 times the coverage generated by boycotts against unranked firms, three times the coverage of firms in the lower quartile, and six times that of firms in the middle. “If you are a high reputation company you are better off conceding early rather than letting the game play out and letting the media attention overwhelm you,” said King. “Low and middle reputation companies are less at risk and the long term consequences are less damaging to them.”

The Capacity of the Organization Launching the Boycott
The popular myth of boycotts is that they emerge spontaneously from a grass-roots effort. In fact, the larger and more organized the organization that launches a boycott, the more likely it is to succeed. “What I find is that formally organized groups are much better at generating media attention,” said King, “probably because the media knows them already. It could also be that they have a stronger infrastructure or better public relations professionals.” Whatever the case, said King, the importance of media coverage in a boycott’s success puts a premium on the capacity of the organization running the boycott to generate sustained coverage. He notes that when public demonstrations or celebrity spokespeople are added to the mix it adds to news value, expanding coverage and therefore impact on the reputation of the target of the boycott.

King says that boycotts, like those involved in the Civil Rights Movement, brought about change because they had a direct impact on the profitability of businesses. He wrote: “In more recent years, as the companies have come to rely extensively on image and reputation, the importance of reputation and positive media coverage appears to have changed the mechanism of a boycott’s greatest influence, thus making it an attractive tactic for movements of all types.”
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