When corporate silence is costly: Negative consumer responses to corporate silence on social issues

Abstract Research Summary The growth of corporate activism on contentious social issues creates a puzzle as to why companies would risk engaging on divisive topics. Indeed, a mixed body of evidence identifies that such activism often reduces stakeholder support. We shed light on this puzzle by reversing attention to the costs of not engaging in corporate activism. Grounded in the cognitive model of stakeholder behavior, we theorize whether and when consumers will negatively respond to corporate silence on a social issue based on the visibility of silence. Our theory also suggests that peer activism and market niche are pivotal contingencies that exacerbate or mitigate such negative responses. Using a rigorous within‐company cross‐platform difference‐in‐differences econometric model, we find support for our theory and uncover substantial costs of corporate inaction. Managerial Summary We study stakeholder responses to corporate silence on social issues, using the empirical context of fashion firms and the Blackout Tuesday event in support of the Black Lives Matter movement, which occurred on Instagram but not Twitter. We find that there are sizeable risks to staying silent on a highly salient social issue. For firms that do not participate in the event, follower growth slows 33% and likes on their posts drop 12% in the following month on Instagram as compared to Twitter. In addition to issue salience, managers should closely attend to peer activism, which exacerbates these negative reactions. They should also consider their market niche, as a narrow niche offers protection while firms with a wider market experience larger declines in stakeholder support.