In a recent working paper, Associate Professor Nathan Lane and his co-authors at Monash University, David Kreitmeir and Paul Raschky, assessed how the killings of mining activists affected the financial fortunes of companies associated with those murders.
The research suggests that the association with flagrant human rights violations in the press or in human rights reports alone has a significant negative impact on the company’s stock market value, even when there is no legal action.
When analysing the effect on the market value of a mining company following allegations of the assassination of an activist the researchers found that the market value of associated businesses fell by as much as $100 million over the course of 10 days. The researchers suggest that media attention plays a crucial role. The financial penalty for companies is more pronounced during slower news cycles versus when events coincide with competing news stories.
The research also investigates the limits of bad publicity as a form of governance. The authors note that multinationals may not have full control over the behaviour of local affiliates and authorities but that nevertheless investors are sensitive to reputational risk and tend to reduce stakes in companies linked to ethical and legal challenges.
The paper concludes, ‘Our findings show that informational campaigns by civil society have in fact an impact on multinational corporations and being linked to human rights abuses can significantly influence an associated companies’ stock market value.’
This research has been profiled in Quartz and on the University of Oxford’s Arts blog. It has reached an engaged audience on Twitter and is also being featured later this month on the ProMarket website, an online publication of the University of Chicago.