Exploratory Study of 3 Cases of Corporate Crisis and Stock Market Reaction

Abstract

The topic of overreaction, and reactions in the stock-market is highly important to understand for
anybody with a financial background, or with a general interest in the stock-market. To this extend it seemed as authors would agree that overreactions in the stock-market is a common concept, however there is a great deal of uncertainty about how, and when it would happen. Therefore, this paper will have a quantitative exploratory case-study approach, with the purpose of providing more insights in how the market reacts to certain situations. It was chosen to use legitimacy as the criteria for the crisis events, meaning all the cases presented in the paper will have experienced legitimacy issues in relations to the crisis. A theoretical framework will be used for the analysis that highlights some of the important aspects from the crisis situations, which will in the end be used for a combined comparison.
What was found in this paper was that the level of uncertainty information and uncertainty risk that a crisis created could play a significant role when it comes to reactions from the market. It was seen that the importance of having a proper response strategy to legitimacy crisis situations was fairly minimal. The case-studies showed that the company who seemed to have the worst response to the event, was also the company that experienced the least impact from the crisis, in terms of stock-market reaction.