The Price of Pride: Corporate Responses to Politicized Social Issues
Abstract
We document the evolving corporate and investor responses to the politicization of social issues and its implications for firm value. Utilizing all tweets posted by S&P 500 companies between 2018 and 2023, we identify company-level characteristics associated with pro-LGBTQ+ tweets. We validate the passage of the Florida Parental Rights in Education Act (FPREA) in March 2022 as a salient political event that shifted both public and political sentiment against LGBTQ+ rights. Leveraging a Regression Discontinuity in Time (RDiT) framework, we document a decline in the volume of pro-LGBTQ+ tweets following March 2022, primarily driven by a reduction in neutral-toned tweets. These results are further corroborated using a difference-indifferences (DID) approach. In an event-study setting, we find that pro-LGBTQ+ tweets were associated with positive abnormal stock returns prior to the politicization event, while the market reaction became muted thereafter. This differential effect is most pronounced among companies headquartered in Democratic-leaning states. Collectively, our findings highlight the strategic considerations firms face when navigating socio-political discourse, and underscore the importance of aligning public communication with shifting political and investor climates.