Do Investors See Value in Ethically Sound CEO Apologies? Investigating Stock Market Reaction to CEO Apologies

Since the late 1990s, the number of apologies being offered by CEOs of large companies has exploded. Communication and management scholars have analyzed whether and why some of these apologies are more effective or more ethical than others. Most of these analyses, however, have remained at the anecdotal level. Moreover, the practical, economic consequences of apologies have not been examined. Almost no rigorous or systematic empirical work exists that examines whether stakeholders 1) reward firms whose CEOs give apologies that are more, rather than less, ethical; and 2) punish firms whose corporate apologies are not ethically sound. This lacuna is surprising given that the whole purpose of an apology is to restore trust between the apologizer and the recipients of the apology. This paper explores how one group of stakeholders ― the shareholders ― responds to apologies that are more ethical. In particular, we consider market re-actions to CEO apologies and investigate whether cumulative abnormal returns (CARs) increase or decrease in the short-term when these same firms’ CEOs give apologies that are more ethical