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Effective Strategies for Handling Shareholder Dissatisfaction [Corporate Strategy]

Effective Strategies for Handling Shareholder Dissatisfaction [Corporate Strategy]

Simone Wies, Arvid O. I. Hoffmann, Jaakko Aspara and Joost M.E. Pennings

Companies not only deal with revenue and customer pressures, but often face a media onslaught from shareholder activists. These activists may meet in private with management and the board, or submit proposals, or complaints, that criticize the firm’s strategic direction. However, they also take their complaints to the streets, gaining media coverage of their demands. In the process, shareholder activists can inflict significant financial damage on firms, tarnishing their reputations, undermining investor confidence, and imposing administrative costs. Despite all of these ills, past academic research demonstrates that firms rarely address the issues shareholders raise.

So how are firms responding to these demands—and are their strategies working? Anecdotal evidence suggests that firms respond to shareholder complaints by adjusting their marketing investments, but the direction and magnitude of such adjustments are unclear. A new study in the Journal of Marketing explores how marketers can configure these investments to respond to complaints and limit their damage.


The common earnings management view in the marketing literature proposes that firms cut marketing investments when challenged by the stock market. However, our research team adopts the investor perception management perspective and proposes that firms have incentives to increase marketing investments subsequent to receiving shareholder complaints. Specifically, we argue that marketing investments, in particular advertising, are used to respond to shareholder complaints. Such investments are expected to increase the visibility of and emotional connection to the firm, signal the firm’s financial health and sound business strategy, and prevent complaints from contaminating other stakeholders’ attitudes.

We compile a unique data set covering all shareholder complaints submitted to S&P 1500 firms, firm advertising investments, firm value, shareholder complaint topic media coverage, and a set of control variables from 2001 until 2016. We analyze a final sample of 831 firms to answer the following three research questions:

  1. Do firms increase advertising investments in response to shareholder complaints?
  2. How does shareholder complaint salience shape a firm’s advertising investment response?
  3. If firms adjust advertising investments in response to stakeholder complaints, what is the effect of such a strategy on firm performance?

Key findings include:

  • Firms that receive shareholder complaints experience substantial decline in firm stock value from receiving such complaints.
  • An average firm in our sample increases advertising investments by up to $8.08 million following a shareholder complaint.
  • This advertising investment response is larger when complaints are submitted by institutional investors, relate to nonfinancial concerns, or if the topics covered in the complaints receive a great deal of media attention.
  • Increasing advertising investments is an effective firm response: it helps mitigate the decline in firm value following shareholder complaints.

These data provide robust evidence for the proposed increased advertising investment response. In particular, we find that firms increase advertising investments following shareholder complaints and that such an advertising investment response is effective at mitigating a post-complaint decline in firm value. Furthermore, results suggest that firms are more likely to increase advertising investments when shareholder complaints are submitted by institutional shareholders, pertain to nonfinancial concerns, and relate to topics that receive more media attention.

The findings provide new insights about how firms address stock market adversities with advertising investments and inform managers about the effectiveness of such a response. Specifically, the study’s findings are important for firm managers deliberating how to respond to shareholder complaints, offering them an additional strategic lever to protect the value of their firm when being challenged by the stock market. Importantly, marginal effects analyses indicate that the majority of firms investigated in the study underinvest in advertising following shareholder complaints. Notably, though, if shareholder complaint salience is high, firms invest close to an optimal level. In responding to shareholder complaints, managers should aim to coordinate an advertising investment response with other functions in the firm, such as public relations. Finally, we recommend that firm managers team up with external partners such as investment analysts to better communicate their firm strategy to the investor community, amplify the potential effect of advertising investments, and try to prevent shareholder complaints being submitted in the first place by winning support for their strategy.

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From: Simone Wies, Arvid Hoffmann, Jaakko Aspara, and Joost Pennings, “Can Advertising Investments Counter the Negative Impact of Shareholder Complaints on Firm Value?Journal of Marketing, 83 (July).

Go to the Journal of Marketing

Simone Wies is Professor of Marketing, Goethe University Frankfurt, Germany.

Arvid O. I. Hoffmann is Professor of Marketing, University of Adelaide, Australia.

Jaakko Aspara is Vice-Rector, Dean of Research, and C. Grönroos Professor of Marketing, Hanken School of Economics, Finland.

Joost M.E. Pennings is Professor of Finance and Professor of Marketing, Maastricht University, Marketing-Finance Research Lab, Netherlands; and AST Professor in Commodity Futures Markets, Wageningen University, Netherlands.