The Impact of Poor Stakeholder Management Practices: A Case Study of Facebook

Jacob Forsberg Adolfsen

Student thesis: Master thesis


The purpose of this thesis is to expand the research on enlightened shareholder value theory by answering the research question “How do investors value poor stakeholder management practices?”. It does so with secondary data found through desk research using Facebook as a case company. Resultantly, results obtained in this thesis should be treated with caution when seeking to generalize findings.
The thesis reviews in depth the existing literature on traditional and enlightened shareholder value theory as well as corporate governance mechanisms used in ensuring this value creation. Afterwards it lays out Facebook’s business model, examining factors related to financials, ownership, management, board of directors and pay. Subsequently it investigates Facebook’s main stakeholders determined to be its users, the advertisers on the platforms, and the broader society. The thesis then performs qualitative tests of Facebook’s corporate governance determining that Mark Zuckerberg’s threefold role in the company as CEO, chairman and controlling owner carries negative implications including a poor board composition and a partial neglect of minority shareholders and stakeholders.
To quantitatively understand the effects of Facebook’s insufficient stakeholder management on the share price, event studies are carried out. These are based on abnormal returns over the normal returns, which are estimated using a market-model based on the Nasdaq Composite 100 index using a 120-day estimation window. AARs and CAAR-windows of three, five and seven days are considered and tested using a parametric student’s t-test and a nonparametric rank test. The first event study is based on a sample of 11 events and examines if events predicted to have a negative impact on stakeholders and ultimately shareholders are in fact leading to negative abnormal returns. This study finds negative abnormal returns which are most apparent in a three-day CAAR window. In the second event study based on a sample of seven events predicted to have a positive effect on abnormal returns it is shown that no positive abnormal returns are found, and instead slightly negative CAAR effects are seen. No findings are significant, and this thesis is therefore not able to quantitatively conclude that investors care about poor stakeholder management practices although indications of this are apparent.
The thesis concludes by seeking to explain the event studies’ insignificant results considering three potential explanations: 1) investors may not value stakeholder management as argued for in enlightened shareholder value theory, 2) investors are irrational and biased by placing too much trust in Zuckerberg and 3) the methods used in the event studies are insufficient as means of identifying results.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
Publication date2020
Number of pages93
SupervisorsAleksandra Gregoric