Abstract
Family firms are typically associated with a respected system of values, yet the impact of such values on shareholder reactions remains to be understood. We examine the presence of humility rhetoric in corporate communications, characterized by language emphasizing modesty and collaboration, and its effect on shareholder reactions for both family and nonfamily firms. Analyzing 2250 shareholder letters from S&P 500 family and nonfamily firms and 1460 shareholder letters from small and medium-sized family and nonfamily firms, this study finds strong evidence supporting the positive impact of humility rhetoric on shareholder reactions for family firms. Further, interesting effects emerge when considering the influence of positive and negative media coverage. We bolster these findings with a sample of small and medium-sized family and nonfamily businesses and find consistent results. Our findings help advance the economic theory of family firms by highlighting the capital market implications of humility rhetoric in these firms and its importance in shaping positive shareholder reactions. Further, from a methodological perspective, this study introduces a measure of humility rhetoric using a computer-aided text-analysis approach, extending its applicability to broader research contexts.
Plain English Summary
Family firms and nonfamily firms are evaluated differently by shareholders based on various values, one of which is the level of humility exhibited in corporate communications. Prior research has demonstrated that humility is a critical value for organizations. However, a gap remains regarding whether family firms experience more economic gains from communicating humility compared to nonfamily firms. Using samples of large and small and medium-sized family and nonfamily firms and analyzing their shareholder letters, we find that family firms benefit more from communicating humility, as they tend to elicit more positive shareholder reactions compared to nonfamily firms. Additionally, a humble communication leads to more positive returns when family firms receive negative media coverage, whereas nonfamily firms benefit more from communicating humility when media coverage is positive. The insights from this study suggest that family firms should communicate more humility in their corporate communications, especially when faced with negative news.
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Notes
We performed a more detailed form of exact matching—i.e., finer-grained exact matching (Stata option: #0). In this approach, we maintained the precision of matching variables without coarsening, ensuring that matching adjustments effectively addressed differences between the control and treated groups (Heckman & Navarro-Lozano, 2004). Our choice of the CEM procedure over propensity score matching was deliberate, as existing evidence highlights the distinct advantages of CEM over alternative matching techniques, providing superior accuracy in matching outcomes (Iacus et al., 2009).
Analyzing letters to shareholders through content analysis proves to be highly valuable as it has the capacity to unveil deeper insights into the values, thought processes, attitudes, and intentions of organizations (Carley, 1997).
While we acknowledge Weidman et al.’s (2016) dictionary that includes numerous words as indicators of humility, most of the dictionary refers to emotional experiences focused on leader humility rather than organizational humility.
In this way, we naturally controlled for reverse causality, ensuring that shareholder reactions are not driving media coverage but rather media coverage is shaping shareholder reactions.
The “Web Blogs” section within Lexis-Nexis sources encompasses data from 35 distinct blogs where news discussions and public opinions are shared on a range of topics (accessible at www.lexisnexis.com).
Ensuring sufficient statistical power for our supplementary study is essential to enhance the robustness of our main findings and minimize both Type I and Type II errors (Ledgerwood et al., 2017). To achieve this, we conducted a power analysis using the G*Power software (Faul et al., 2007). We assumed a small effect size (F-squared = 0.02 using the Cohen criteria), set to 0.05 and power to 80%. In our model, we included nine predictors. The power analysis indicated that we needed a total sample size of 141. Thus, our supplemental data met this threshold.
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Acknowledgements
The authors would like to thank Dr. Zhenyu Wu and two anonymous reviewers whose feedback helped develop this study and its contributions. Additionally, the authors appreciate other members of the special issue editorial team, which included Dr. Jim Chrisman, Dr. Chevy Fang, and Dr. Silvio Vismara. Further, the authors offer deep appreciation and profound gratitude to our esteemed colleague, Dr. Daniel T. Holt, who contributed to this study but, sadly, passed away in 2022 prior to its publication. This article is dedicated to Danny. His friendship, enthusiasm for scientific inquiry, and enduring spirit continue to inspire us and so many others.
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Sanchez, P., Pidduck, R.J., Phillips, D. et al. From modesty to market: shareholder reactions to humility rhetoric in family and nonfamily firms under media scrutiny. Small Bus Econ (2024). https://doi.org/10.1007/s11187-024-00878-3
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DOI: https://doi.org/10.1007/s11187-024-00878-3