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Sexual Harassment Incidents Can Have Immediate Effect on Company Value, Analysis Finds

  • Analysis of sexual harassment scandals associates them with an average market value loss of 1.5 percent after the scandal becomes publicly known
  • Losses are steeper if the scandal attracts prolonged media attention or if the CEO is involved in misconduct
  • Companies that reveal incidents on their own or take action against those involved typically mitigate their losses

Summary by Dirk Langeveld

When a company’s leaders or employees are accused of sexual harassment, the business can quickly find itself subject to litigation as well as a loss of customers or clients. But there has been little research on just how severe this impact is.

An analysis recently published in the Journal of Corporate Finance finds that these scandals have an immediate effect, diminishing a company’s market value by an average of 1.5 percent the day after the scandal breaks. Losses are greater, at an average of 6.5 percent, if the misconduct involves the company’s CEO or if the scandal attracts prolonged media coverage. The impact of the scandal fades over time, but still results in a long-term market value loss averaging 0.8 percent.

Researchers noted that while there have been several studies on the market value impact of companies involved in corporate scandals such as financial corruption, sexual harassment cases may “appear more idiosyncratic and therefore harder to predict and protect against” and their potential impact has generally been overlooked. To determine how these cases affected company values, the study reviewed 199 incidents at major businesses between 2005 and 2019.

Companies tended to mitigate their market value losses if they revealed the incidents on their own instead of having them revealed through the media. These announcements were more likely to be issued by businesses that were already sensitive to consumer opinion, such as those selling consumer products or well-known brand names.

Losses were also stemmed if the company undertook steps such as firing those accused of sexual harassment, if a lawsuit had been filed against the company, or if litigation was expected.

The #MeToo movement, which began in 2017 in response to the Harvey Weinstein scandal and brought greater attention to sexual harassment issues, did not significantly change the impact of sexual harassment scandals on a company’s value. However, the likelihood that these scandals would receive media attention increased fourfold after the movement began.

In Connecticut, the Time’s Up Act was passed in 2019 requiring employers to provide two hours of sexual harassment training to employees. The deadline for this training has been repeatedly pushed back due to the COVID-19 pandemic and is currently set for April 19.

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