Conceptual Model and Hypotheses
Our conceptual model is based on the organizational level of the multilevel theory of social change (Aguilera et al. 2007). This hierarchical model includes stakeholders who influence CSR on the individual level (employees), organizational level (shareholders, managers, and consumers), national level (governments), and transnational level (NGOs). The stakeholders on the organizational level are split into insider and outsider stakeholders. Insider stakeholders, such as managers and shareholders, have the most direct power over CSR decisions, as they negotiate directly in the decision-making politics within a firm. Outsider stakeholder groups, such as consumers, put pressure on the insider stakeholders by means of their voice (protest) or exit (refraining from consumption). Stakeholders on each level pressure firms to engage in CSR activities and may interact while doing so. Our study specifically examines this interaction between the (trans)national level and the organizational level. Figure 1 shows our conceptual model and hypotheses. We develop the hypotheses in the paragraphs below.
The Effect of Online Protests on Share Value
Although the impact of protests on firms is difficult to measure (Bartley and Child 2011; King and Soule 2007; Vasi and King 2012), a number of studies have assessed the effect of such actions. Bartley and Child (2011) examine the effects of anti-sweatshop protests on consumer and shareholder evaluations: reputation, sales, and share prices. Their results show that protests can decrease the CSR ratings and lower the share prices. The effect of the investigated protests on sales and reputation depended, however, on the type of firm and the protest intensity. First, these protests only decreased the sales of highly specialized and recognizable firms. Second, only highly intense protests tarnished the reputation of firms with a good reputation.
Other studies focus on the effects of offline protests on a specific stakeholder. First, firms that have experienced a drop in their reputational standing are more vulnerable and are, therefore, more likely to respond positively to protesters’ requests (King 2008). Second, Chavis and Leslie (2009) demonstrate that calls to boycott French wine in the USA during the war in Iraq did indeed result in significantly lower weekly sales. Third, most studies on the effects of offline protests use the financial value of the firm as the outcome variable. When stakeholder support turns into stakeholder activism, the effects on the financial value are mixed. In an event study, King and Soule (2007) demonstrate that protests influence a firm’s financial performance negatively when measured as a short-term abnormal variance in the share price. In a later study, however, Vasi and King (2012) test this relation for long-term effects. In an analysis of stakeholder activism targeted at more than 200 US firms between 2004 and 2008, they find that protests did not increase the firms’ perceived environmental risk and consequently did not affect their financial performance in the long term. Shareholders’ perceptions of protests may mediate their effect on the targeted firms’ financial value: An analysis of corporate social events which have either positive or negative effects on other stakeholders shows that shareholders may react positively to events that other stakeholders perceive as negative (Groening and Kanuri 2013).
Similarly, an online protest provides shareholders with information about a firm’s possible socially irresponsible behavior, which may result in social pressure to disinvest in the targeted firm, as well as concerns about its future cash flows. We assume that shareholders update their beliefs about the future firm performance when they become aware of an online protest. It might take some time for an online protest to gain momentum before shareholders notice the protest, but from that moment onward the stock markets will reflect the shareholders’ expectations regarding the future sales and profitability, with any changes in these expectations are reflected in the share prices (King and Soule 2007).
In an event study by Koku (2012), however, no significant effect is found concerning the stock market reaction to online protests. Koku, however, questions the generalizability of his findings, and we believe there are three possible explanations for the lack of effects. First, the study was based on a small sample size (n = 63). Second, the protests included in the study were all calls to boycott, which require more effort from the protest participants than protests only aimed at changing consumers’ attitudes. Third, individuals rather than formal protest groups, which have more resources to mobilize consumers behind their cause, initiated and organized all the protests. As such, the literature is inconclusive on whether or not protests via online channels affect the targeted share value like traditional offline protests do. In recent years, shareholders have made increasing use of online channels to gather market-relevant information (O’Connor 2013). We therefore expect online protests to have an effect on the shareholder expectations of a targeted firm’s future cash flow. Thus, adding to King and Soule’s (2007) findings regarding the offline situation, we expect online protests to also negatively affect the targeted firm’s share price. This leads to our first hypothesis:
H1
Online protests have a negative effect on the price of a firm.
Protest Size
Previous research identifies protest size as an important factor in changing firm behavior and as potentially having financial consequences for a targeted firm (Bartley and Child 2011; Luders 2006; Tilly 2004). Online protests which succeed in attracting large numbers of participants help activist groups draw investors’ and traditional media’s attention, which gives this group a powerful position with respect to the targeted firms. However, King and Soule (2007) do not find a significant relationship between protest size and share price. They indicate that their dataset is limited to protests aimed at US firms, which may bias their results, as US firms tend to be less stakeholder-centric than European firms. Online mass mobilization may draw the attention of various stakeholders, including the shareholders. Therefore, despite the mixed results to date, we expect online protests with a higher number of participants to have a stronger negative effect on a firm’s share price. We thus hypothesize:
H2
Online protests with a higher number of participants have a stronger negative effect on the share price of a firm than smaller protests.
Protest Characteristics
Besides the question of whether there is an effect on the share price of a firm under attack, it is important to investigate the conditions under which such an effect occurs. Building on the above theoretical development section, we hypothesize that Eesley and Lenox’s (2006) protest characteristics affect the protest size. Legitimacy refers to ‘a generalized perception or assumption that the actions of an entity are desirable, proper or appropriate within some socially constructed system of norms, values, beliefs, and definitions’ (Suchman 1995, p. 574). Legitimacy is a characteristic of stakeholder groups that may increase pressure on firms (Mitchell et al. 1997; Eesley and Lenox 2006). Protest organizers differ in the degree to which they are perceived as legitimate actors in society, which provides them with moral resources, such as support from consumers. As a moral authority, legitimacy may grant activist groups access to a firm’s constituencies that are critical for its survival, for example, its consumers (Mitchell et al. 1997). We hypothesize that the large-scale mobilization of consumers to join an online protest campaign requires an activist group perceived as legitimate (Bennett and Segerberg 2012; Van den Broek et al. 2012). Public opinion surveys show that NGOs and public organizations to a lesser degree enjoy high levels of legitimacy (see, e.g., Edelman 2016), giving them the capability for mass mobilization, and qualifying them to represent their support as based on a CSR issue. In contrast, individuals may lack such legitimacy and are less able to mobilize large numbers of consumers than NGOs. We therefore hypothesize:
H3a
The number of participants in online protests targeted at a firm depends on the legitimacy of the protest initiator.
Second, legitimacy also refers to the request made by activist groups (Eesley and Lenox 2006). As suggested by Mitchell et al.’s (1997) stakeholder theory, the cause and its solution that an activist group supports need to be perceived as legitimate. We argue that when protests are product-related and appeal predominantly to a firm’s consumer base, they are more likely to appeal less to the general public than value-related issues, such as CSR issues (Swimberghe et al. 2011). We do not expect the legitimacy of activists’ request to have a different effect on the online setting than it has been shown to have on offline protests. Therefore, we hypothesize:
H3b
Highly legitimate protest requests relating to widely relevant value-related issues result in higher protest participation than protest requests relating to narrower product-specific issues.
Third, we expect the urgency of the request, in other words the time frame of a protest’s demand, to have an effect on consumer participation in such a protest. Given media’s short attention span, consumers may prefer to participate in protests urgently demanding a change in a firm’s current behavior. Eesley and Lenox (2006) do not find that a very urgent request affects firm responses, but did not assess a request’s effect on participation. We thus propose the following hypothesis:
H3c
Urgent protest requests calling for the cessation of the current firm behavior result in higher protest participation than protests against a firm’s planned future behavior.
The Effect of Online Protests on Consumers’ Image
The pressure on CSR policy and practices also depends on consumers’ perceptions and behavior with respect to a firm (Chavis and Leslie 2009). First, an online protest can affect consumers by negatively affecting their attitude toward a firm. We assume that online protests aimed at highlighting and changing undesired corporate behavior have a cognitive effect on the way consumers exposed to the protest perceive such a firm. In other words, the way consumers think and feel about a targeted firm will become more negative after their exposure to protest (King and Soule 2007). Technological convenience and social connectedness are two online mechanisms that increase exposure to a protest in order to reach a large number of consumers (Kucuk and Krishnamurthy 2007). First, the technological convenience of the internet makes wide-reaching communication more affordable and easier, offering protesters an efficient structure to mobilize consumers for protests targeted at firms. Second, the social connectedness and interactivity of the internet stimulate the formation of online communities and encourage consumers to spread information about the protest. This mass interactivity enables consumers to personalize the frames that activist groups offer (Bennett and Segerberg 2012). Both the technological convenience and social connectedness help online communities reach a broader audience than is possible in an offline setting, allowing them to reach out to consumers who would normally not be exposed.
The effect of online negative information on consumer attitude has been well studied in relation to consumers sharing their negative experiences about firms, i.e., negative electronic word-of-mouth (negative eWOM) (Eberle et al. 2013). These studies find that negative eWOM has a stronger effect than positive eWOM, indicating that bad news about a firm is somehow conspicuous and influences how consumers feel about the firm in question. Similarly, we expect online protests to affect consumers’ evaluation of such a firm:
H4
Exposure to an online protest negatively affects consumers’ image of a firm.
Moderating Effect of Firm Response on Image
Firms are, however, not powerless when faced with an online protest and a number of options are open to them. First, a proactive communication strategy prior to a protest might prevent, or mitigate, its negative effects (McDonnell and King 2013; Yuksel and Mryteza 2009). However, proactive communication strategies that promote a firm’s CSR strategy in an overly positive way may be considered as ‘greenwashing’ by consumers (Aji and Sutikno 2015). Greenwashing refers to the marketing of CSR practices that is seen as excessive and inappropriate self-promotion of the firm (Lyon and Montgomery 2013). Previous research suggests that greenwashing is positively related to consumer skepticism (Aji and Sutikno 2015) and negatively related to trust in environmentally friendly products (Chen and Chang 2013) and corporate legitimacy (Seele and Gatti 2015).
We assume that any negative effects after a protest will be mitigated if the targeted firm implements an adequate response strategy. Traditionally, the literature suggests that conceding to a protest signals a sense of responsibility toward consumers, which will result in positive consumer perceptions (Bradford and Garrett 1995; Conlon and Murray 1996). Subsequent research shows that this relation is not that simple (Huang 2006; Lee and Song 2010; Xia 2013). A response strategy’s effectiveness depends on the firm’s control over the protest issue, as well as the protest’s level of evidence (Huang 2006). By conceding to a protest when consumers (other than the protesters) do not perceive the protest as justified, the protest may harm a firm’s reputation (Lee and Song 2010). Furthermore, the strength of the consumer’s relationship with the firm moderates the effect of an online protest (Xia 2013): The stronger consumers’ relationship with a firm, the more they will tolerate a defensive response. We propose four response strategies that vary in their degree of compliance with a protest request (Bradford and Garrett 1995; Conlon and Murray 1996; Oliver 1991): (1) moving with (conceding to the protest), (2) moving toward (accommodating dialog with the protesters to justify firm behavior), (3) moving against (denying and counteracting the protest), and (4) moving away (ignoring the protest). As the two positive response strategies denote a higher responsiveness to the protesters’ wishes than the latter two strategies (Xia 2013), we propose:
H4a
The firm’s response to a protest moderates the negative effect that an online protest has on consumers’ perception of that firm, because the closer the firm moves toward the protest objectives, the weaker the negative effect.
The Effect of Online Protests on Purchase Intention
An online protest can affect consumers as outsider stakeholders by reducing their purchase intention, which implies that, besides the previously described exposure, online protests need to influence consumers in order for them to forego buying the targeted firm’s products or services. However, evidence of this effect is limited in an online setting. Cheung and Thadani (2012) call for further research into the relationship between the online sharing of information about firms and consumer purchase intentions. Following research on the offline setting (Bartley and Child 2011), we propose:
H5
Exposure to an online protest negatively affects consumers’ intention to purchase the targeted firm’s products.
Moderating Effect of Firm Response on Purchase Intention
Similar to the effect on consumers’ perceptions of the firm, we assume that any negative effects a protest may have on consumers’ purchase intention will be mitigated if the firm implements a response strategy that is closer to the wishes of the protesters (Xia 2013):
H5a
The firm’s response to a protest moderates the negative effect that an online protest has on consumers’ purchase intentions, because the closer the firm moves toward the protest objectives, the weaker the negative effect.