CEO (In)Activism and Investor Decisions

Abstract

While many CEOs are increasingly engaging in activism by publicly expressing their views on social, environmental, and political issues, other CEOs have refrained from doing so-a behavior we refer to as CEO inactivism. Using an experiment, we offer evidence on how CEO (in)activism impacts investor decisions. Consistent with our theoretical predictions, we predict and find that relative to when a CEO expresses a social position inconsistent with investor position, investment decisions are more favorable when the CEO expresses a position consistent with investor position or when the CEO does not express a position (i.e., inactivism). Additionally, CEO inactivism leads to similar investment decisions as when the CEO expresses a position consistent with investor position. Results also reveal that whether CEO (in)activism is prompted or unprompted does not appear to impact investor decisions. Process evidence supports our theory and helps explain these results. First, we find that CEO activism causes participants to focus more on the CEO and the CEO's position and less on the firm's financial performance. Second, CEO inactivism results in participants being more likely to project their own views onto the CEO and think that the CEO holds the same views as them. Finally, we find evidence suggesting that investors endorse the CEO's (in)activism more when the CEO either expresses a position consistent with their own or does not express a position. Our study contributes to the emerging literature on CEO activism, a unique form of voluntary disclosure, by providing causal evidence of (in)activism. We also contribute to the literature examining the impact of social media disclosure on investor decisions. Finally, our findings have practical implications for CEOs who are increasingly called on to publicly express stances on social controversies.