The Impact of CEO Reformative Action and Message Source on Non-professional Investors’ Response to CEO Apologies on Social Media

CEO apologies are prevalent in the business environment and can often be communicated via social media. When CEOs apologize, research suggests that they take reformative actions to overcome individual or institutional inertia and to show the public that they will not stray again (Boyd 2011; Hill and Boyd 2013). However, extant literature does not show which CEO apology strategies, in terms of reformative actions, are most appropriate to maintain investors after adverse events. Using a 2x2 between-participants experiment with 140 participants recruited from Amazon M-Turk, this study provides evidence that investors’ say-on-pay recommendations and likelihood of investing in the firm will be higher when the CEO’s compensation is reduced in response to a cybersecurity incident than when the CEO resigns from the current position. Therefore, following an adverse event, both the CEO and the firm can benefit if the CEO decides to voluntarily give up his/her bonus as a reformative action. Mediation analysis reveals that investors’ perceived sincerity of the apology positively mediates the above relationship. This study also shows that messages source has an influence on the relationship between reformative actions and investors’ say-on-pay recommendations but not on the relationship between reformative actions and investors’ likelihood of investing in the firm. Specifically, when reformative actions are communicated via the firm’s social media account rather than the CEO’s personal account, investors’ say-on-pay recommendations for the CEO will be higher when the CEO’s compensation is reduced than when the CEO resigns from the current position. Thus, message source appears to magnify the effect of reformative actions on investors’ say-on-pay recommendations. Together, the results of this study may inform both researchers and market participants