Rewarding the Extremes: Market Reaction to U.S. Corporations’ LGBTQ Positions

How do investors react to firms “picking sides” along ideological fault lines? Integrating strategic differentiation logic with work on ideological polarization, we argue that some investors will react positively to information that a firm supports a contested social issue and some to information that a firm opposes it. We conduct a financial event study of the Corporate Equality Index (2002-2018), which ranks the largest U.S. firms on LGBTQ policies and practices – naming the “best performers” and the “worst offenders”. We find that on the day the index is released, these companies experience a positive cumulative abnormal return, whereas the companies ranked in the middle do not. Our findings speak to the emerging literature in strategy on the relationship between societal values and financial valuation.