The reputation costs of executive misconduct accusations: Evidence from the #MeToo movement

Abstract

In this study, we examine how sexual harassment accusations against executives affect the stock returns of the affiliated organization. Taking a reputation cost perspective, we identify 98 sexual harassment accusations during 2016–2019, of which 25 directly target organizational executives. We employ an event study methodology to detect abnormal stock reactions for the affiliated organization. The results indicate that #MeToo accusations substantially harmed the stock returns of the organization despite the accusation relating to an individual’s misconduct. We discover significant results only for executives who are employed at the parent organization. Therefore, we first provide evidence that misconduct by individuals matters for organizations. We demonstrate that executive misconduct becomes particularly relevant when the executive assumes a leading position at the parent organization. This finding has important implications for future research and practitioners.