{"id":54508,"date":"2019-08-20T14:00:31","date_gmt":"2019-08-20T13:00:31","guid":{"rendered":"https:\/\/valuesque.com\/?p=54508"},"modified":"2019-08-20T14:13:04","modified_gmt":"2019-08-20T13:13:04","slug":"are-news-on-ceo-blames-it-to-employees-a-good-trigger-for-building-up-a-short-position","status":"publish","type":"post","link":"https:\/\/valuesque.com\/en\/blog\/2019\/08\/20\/are-news-on-ceo-blames-it-to-employees-a-good-trigger-for-building-up-a-short-position\/","title":{"rendered":"Are News on CEO-blames-it-to-Employees a good trigger for building up a Short Position?"},"content":{"rendered":"\n

It is\nsummertime, not too busy, and hence a good opportunity to have a look at some topics\nwhich are rather not at the core of the daily work of an equity investor. So it\nwas a nice coincidence that I had a discussion with some friends during yesterday\u2019s\nlunch meeting about the new BMW-CEO Oliver Zipse and his letter to employees (https:\/\/www.reuters.com\/article\/us-bmw-ceo-letter\/bmws-ceo-urges-staff-to-narrow-sales-gap-with-mercedes-idUSKCN1V618Q<\/a>).\nSome of my friends commented that the letter reminds them a lot to some infamous\nrecent CEO-letters that held the company\u2019s employees responsible for the bad corporate\nperformance. And in fact, Zipse\u2019s note that costs are too high can be well\nunderstood as a warning to the BMW-staff. However, I was a bit more cautious\nwith such conclusions. I think the letter (or what is publicly disclosed about\nit) reads quite different from the well-known employee-bashing-letters in other\ncompanies in recent years. I would give Oliver Zipse the credit of rather\nthinking in motivational terms than in bashing ones.<\/p>\n\n\n\n

But whoever\nwas right in this lunch-time discussion or whether you like such letters or not,\nthe question of one of my friends was inevitable: Does it pay to invest in\ncompanies that engage in employee-bashing? The idea is that such letters could very\nwell shake-up employees and motivate them for working harder in the future. Or\nis it perhaps even a short-signal that is triggered by open employee-bashing? Putting\npressure on employees might demotivate them and the public notice might even\nintensify this effect. And moreover, if the management of companies feels the\nneed for such communication strategies, it might be that the company is already\nin such a bad shape that further stock price losses are highly probable per se.<\/p>\n\n\n\n

Well, I couldn\u2019t do a complete empirical study in this short time to answer this question but at least I collected some data to get a rough picture of the stock market effects of employee-bashing via the general public. I took the dates of some well-known real worlds examples and observed the stock price development of these companies over the next 250 trading days (roughly 1 calendar year). I benchmarked the price developments to broad market indices (Stoxx Europe 600 for European companies, S&P 500 for US companies) to find out about the relative performance \u2013 and here is the result.<\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

In the\ngraph you can see the relative 250-day performance of some specific stocks\nwhere 0 on the x-axis is the day of public announcement. We also mapped an\nequal-weighted portfolio consisting of all single investments.<\/p>\n\n\n\n

We can see:\nIf an investor had invested the same amount of money at the date of the public\nemployee-bashing in each of the example companies she would have generated an\naverage return of \u201330% against the benchmark over one year with this\nintertemporal portfolio (as the dates of public announcement differ from\ncompany to company this is just a virtual portfolio). Moreover, while some\ncompanies really showed a very bad performance there is basically no company\nthat effectively outperformed the benchmark by more than a nuance. Hence, this\nall here looks like it is quite a nice short-selling strategy!<\/p>\n\n\n\n

But some\ncaveats are necessary: <\/p>\n\n\n\n