Industry Scandals

Are they damaging to business?

Scandal is a word that no head of any publicity department of any company wants to hear. It is a well feared term that nobody would like mentioned in the same sentence as their name. You might think of such financial scandals as Bernie Madoff or the Stanford Financial Group Fraud, and even Donald Sterling. These are all famous business scandals. Due to these scandals the businesses involved were financially damaged.

However, a recent study has shown that scandals do not negatively effect most companies in the long run. In fact, while scandal related publicity has shown to initially correlate with a drop in stock, they lead to a long term boost in company value. This doesn't seem to make any sense. Why would a business gain financially from an event with negative connotation.  Psychologists have actually spent a large amount of time studying this.

"Scandals involving bosses of major firms have no long-term negative effect on share prices and can even lead to better performance, University of Sussex research has found". The theory generated by Sussex is that the success of these companies is due to corrective measures taken by these companies post-scandal. On the other hand, psychologists studying this phenomenon have a different opinion. They believe that the cause is natural human intrigue. Negative publicity attracts more attention than positive returns, resulting in better results. Although this is not logical, the human capacity to reach for forbidden fruit has been proven time and time again.

What do you think? Do companies rebound well from scandals because of the attention they bring or because they took the proper measures to protect share values?

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