From modesty to market: shareholder reactions to humility rhetoric in family and nonfamily firms under media scrutiny

• Published in: Small business economics 2024-08, Vol.63 (2), p.755-780
• Main Authors: Sanchez, Paul, Pidduck, Robert J., Phillips, Duygu, Daspit, Joshua J., Holt, Daniel T.
• Format: Article
• Language: English
• Subjects: Authenticity; Business and Management; Business communications; Capital markets; Communication; Companies; Comparative studies; Economic theory; Entrepreneurship; Family owned businesses; Industrial Organization; Investor behavior; Management; Mass media; Media coverage; Microeconomics; Modesty; Organizational behavior; Research Article; Rhetoric; Scrutiny; Small & medium sized enterprises-SME; Stockholders; Values
• ISSN: 0921-898X; 1573-0913
• DOI: 10.1007/s11187-024-00878-3

Family firms are typically associated with a respected system of values, yet the impact of such values on shareholder reactions remains to be understood. We examine the presence of humility rhetoric in corporate communications, characterized by language emphasizing modesty and collaboration, and its effect on shareholder reactions for both family and nonfamily firms. Analyzing 2250 shareholder letters from S&P 500 family and nonfamily firms and 1460 shareholder letters from small and medium-sized family and nonfamily firms, this study finds strong evidence supporting the positive impact of humility rhetoric on shareholder reactions for family firms. Further, interesting effects emerge when considering the influence of positive and negative media coverage. We bolster these findings with a sample of small and medium-sized family and nonfamily businesses and find consistent results. Our findings help advance the economic theory of family firms by highlighting the capital market implications of humility rhetoric in these firms and its importance in shaping positive shareholder reactions. Further, from a methodological perspective, this study introduces a measure of humility rhetoric using a computer-aided text-analysis approach, extending its applicability to broader research contexts. Plain English Summary Family firms and nonfamily firms are evaluated differently by shareholders based on various values, one of which is the level of humility exhibited in corporate communications. Prior research has demonstrated that humility is a critical value for organizations. However, a gap remains regarding whether family firms experience more economic gains from communicating humility compared to nonfamily firms. Using samples of large and small and medium-sized family and nonfamily firms and analyzing their shareholder letters, we find that family firms benefit more from communicating humility, as they tend to elicit more positive shareholder reactions compared to nonfamily firms. Additionally, a humble communication leads to more positive returns when family firms receive negative media coverage, whereas nonfamily firms benefit more from communicating humility when media coverage is positive. The insights from this study suggest that family firms should communicate more humility in their corporate communications, especially when faced with negative news.