Lessons in communicating market exits
Awkward farewell messages hurt share prices and market caps.
Binance is leaving Malaysia, eBay is leaving Israel, and Delivery Hero's foodpanda left Thailand. How you say goodbye matters and a new JoM study reflects on this. The study provides a roadmap for managing shareholder impressions during corporate exits from contentious regions.
Key Takeaways for IR & Communications Professionals:
Shareholders Punish, Then Potentially Reward: On average, firms announcing disengagement from a geopolitically uncertain market face immediate punitive reactions from shareholders, with a mean cumulative abnormal return (CAR) of -1.07% in the short term ([-3,3] event window). However, this reaction can reverse in the longer term, turning marginally positive (0.37% over a 13-month period). This suggests that while short-term losses are expected, long-term benefits, such as stronger customer and employee support, may eventually outweigh the costs.
Market Emphasis Mitigates Short-Term Penalties: The study highlights that emphasizing product-market activities and stakeholders (e.g., customers, suppliers, rivals) in disengagement announcements is positively associated with shareholder reactions. This "market emphasis" signals to shareholders that the decision is driven by economic prudence, aiming to minimize potential financial implications. For an average firm, a 23.4% market emphasis in the announcement could effectively nullify punitive shareholder reactions.
Social Emphasis: A Double-Edged Sword in the Short-Term: While social emphasis (mentioning employees, environment, and community) in announcements might seem beneficial for corporate social responsibility (CSR), the study found it to be unassociated with short-term shareholder reactions. More importantly, social emphasis can weaken the positive impact of market emphasis. This suggests that a dual emphasis can be perceived by shareholders as linguistically complex or even obfuscatory, rather than providing complementary information.
Timing Matters: Proactive vs. Reactive Disengagement: Delaying the disengagement announcement can weaken the positive association between market emphasis and shareholder reactions. While a delayed announcement with high market emphasis might suggest careful planning, it can also signal that management was reactive rather than proactive, potentially leading shareholders to believe the firm was forced out of the market rather than acting in their best interest. Therefore, being proactive in announcing disengagement is advisable.
Actionable Insights for Communications:
Frame Strategically: When announcing disengagement from geopolitically uncertain markets, prioritize framing the message around tangible product-market reasons, such as supply chain disruptions, operational difficulties, or customer service challenges.
Mind the Mix: While CSR is important, avoid overemphasizing social aspects in disengagement announcements, especially if aiming to mitigate immediate shareholder penalties. A balanced approach or clear prioritization of market-driven reasons is crucial to avoid confusing investors.
Timeliness is Key: Proactive disengagement announcements, particularly those with a strong market emphasis, are more likely to be viewed favorably by shareholders in the short term. Delays can erode the positive impact of otherwise well-framed messages.
This research underscores the critical role of linguistic framing in shaping shareholder perceptions during challenging corporate decisions.
For investor relations and communications teams, understanding these nuances can help in crafting more effective and impactful disengagement announcements.