Do executives change corporate policy in response to negative press? To study this question, we investigate whether the amount of news coverage triggered by industrial accidents affects the corporate policy of the firms involved. We show that firms increase share repurchases and advertising expenses during the two years following an accident. This positive impact on payout and advertising is limited to accidents covered by a large number of news stories, and occurs regardless of other accident-and firm-specific characteristics. Finally, the impact is more pronounced among recently-appointed CEOs and better-governed firms. Overall, we show that firms’ executives, and not shareholders, behave as if they feared the consequences of accidents on the firm’s image.
