November 28, 2022

Corporate Scandals: The “Box Office” Effect

If your Thanksgiving break was anything like mine, turkey & football were followed by a heavy helping of cinema. One of my favorite genres, at least before today, was “corporate scandal.” But if you’re at a company that finds itself the subject of one of those films, your IR team best get their messaging in order.

A recent study says that when these movies hit the box office, the stock market impact can be very real – even though they simply resurface drama that everyone already knew about. If you’re into horror, here’s a finding from the study:

Our empirical results demonstrate that the release of scandal re-exposing movies, as a special form of stale information reiteration (regarding past corporate scandals), also triggers prominent stock market reactions. However, unlike the findings of Gilbert et al. (2012) and Tetlock (2011), both of which show that the changes in stock prices caused by stale information reverse over the course of a day to a week subsequently, our findings align more closely with Huberman and Regev (2001), showing that scandal re-exposing movies induce a permanent discount in stock valuation.

Permanent discounts! Yikes. My first instinct here was to blame “cancel culture,” but guess what? Many of the films in the sample date back to the ’90s and 2000s. You can see the full sample on page 35 of the study. At this point, there’s probably no additional harm in using it as a “watch list”…right?

Liz Dunshee