Corporate Responses to Internet Flaming: Evidence from Japan

Abstract

This study examines how target companies react to the Internet flaming and how the reactions affect their stock prices, based on the 154 flaming events targeting Japanese listed companies from 2009 to 2018. Among 154 flaming events, target companies ignored the flaming and did not take any actions in 80 cases while actions were taken in 74 events. These actions include 49 official apologies, 18 objections, and 7 deletions of comments without appropriate apologies. Using a probit model, we demonstrate that flamed companies are more likely to take actions if their stock prices drop immediately after the flaming, the incident is published in the newspaper, or they have higher PBR or sales growth. We also show whether the effect dies down in the short term depends on responses of the flamed companies. When a company apologizes or deletes comments, its stock price tends to decrease significantly immediately after the outbreak of the flaming, but this decrease does not continue after a few days. In contrast, when the company objects to the flaming, its stock price starts to decline a few days after the flaming outbreak and continues to further decline.