#MeToo cases cost companies a small fortune—and it’s not the legal fees

Want to watch a company’s market value plummet in 24 hours? Just have a journalist break a story about brewing sexual harassment accusations.

An eye-opening analysis published this week in the Journal of Corporate Finance finds that, on average, news of a sexual harassment case at a major company will lead to a market value decline of 1.5% through the following day. That’s an average drop of $450 million. “Sexual harassment has serious consequences for the victim. But managers and investors should also be interested for purely financial reasons, as it can wipe off enormous amounts of market value in a matter of days,” said coauthor Ulf Nielsson, an associate professor of finance at Copenhagen Business School, in a statement. Nielsson said this is the first study of how #MeToo cases impact company value.

Researchers at Copenhagen Business School studied 200 sexual harassment cases from 2005-2019 at mostly well-known companies like Facebook, Goldman Sachs, CBS, Amazon, Disney, Tesla, and Fox. They included a variety of sexual harassment scenarios including verbal abuse, physical advances, and sex.

If the claimed harassment involved a CEO or involves heavy news coverage, the stakes were considerably higher, with market value drops of up to 6.5%. The researchers attribute this to public sentiment, and not to any related penalties or sudden shift in productivity.

Interestingly, sexual harassment cases have long been this costly, but since the #MeToo movement, the chances of a company being involved in a similar scenario have gone up fourfold.

The researchers note that share prices drop less when companies reveal the incidents themselves, rather than waiting for media to find out—though they point out that an obvious even better strategy is to prevent the harassment from happening in the first place.