Guido Ceccarossi

Academics studied the theory of a company’s communication when it is involved into a crisis but they were less concerned about the impact of the communication on a listed company’s share price, especially when it resulted from a shock event. There is a lack of information about the role played by news media. The aim of this paper is to investigate if in cases of shock events (i) a company’s response strategy has a different effect on shareholders, observing the effect on share prices, and (ii) how the news media can affect the value change. Using the event study methodology, the Cumulative Abnormal Return of companies’ share prices involved in shock events was calculated. Statistics show a best effect of an accommodative response than a defensive strategy in cases of scandals and product recalls. There is no valuable impact of company communication in cases of incidents. With news media variable, the results show a worsening effect with bad news and a mitigating effect with good news. It was proved that the impact of a response strategy is surpassed by news media. When there is absolute certainty of guilt for a given situation, it is more convenient for management to apologize, and when there is no certainty, there was no substantial difference, because in the mind of an investor the focus shifts to the event itself. The news media has been shown to have a huge impact on investor perception, even more so than a company’s best response strategy.