Stock Market Response to CEO Sexual Misconduct : Evidence from the #MeToo Era

We examine the impact of CEO-related sexual misconduct on U.S. firms’ stock market value in the #MeToo era. Our findings suggest that investors react negatively to corporate sexual misconduct, meaning that misbehaving CEOs cause significant damage to their shareholders’ wealth. On average, firms lose $2.23 billion when sexual misconduct is uncovered, which corresponds to a total value loss of $42.42 billion in equity market value. CEO-related sexual misconduct is more likely to occur in firms with lower profitability than their direct competitors. Additionally, firms that are larger and have more debt than their industry average are more inclined to employ misbehaving CEOs. Furthermore, CEOs who are accused of sexual misconduct are employed for a shorter period of time