Reports of workplace sexual harassment lead to an average 1.5% decrease in a company’s market value in the days after they’re made public, with the effect “considerably amplified” by a CEO being involved, a higher amount of news coverage and an increased number of accusers, according to new research.

The findings, set to appear in the Journal of Corporate Finance in April, add to a growing body of psychology and sociology research about the impact that sexual harassment has on victims, productivity and the retention and recruitment of employees. Unlike previous studies, however, this research aimed to measure the impact on company market value in order to capture all costs that the market may price in as a result of a scandal.

“This is not just a risk that you want to do something about, you know, from the bottom of your heart,” said Laurids Moehl Schack, a co-author of the research and an associate at Boston Consulting Group in Denmark. “It’s a real business risk … just like having an oil pipeline break and do environmental damage somewhere, or some fraud taking place or these other kinds of corporate scandals, because we actually show that it’s comparable in importance.”

Moehl Schack and his co-authors used news aggregation website Nexis Uni to identify sexual harassment events, as well as a combined Nexis Uni and Google News search for S&P 500 companies and press releases from the U.S. Equal Employment and Opportunity Commission to ensure that all relevant events between 2005 and 2019 were captured.

“It was very important for us to have a real and a strong methodology because we didn’t want to just pick random stuff,” Moehl Schack said. “So I think we spent a lot of time trying to be very diligent and actually coming up with a methodology that would systematically gather the data we needed.”

News aggregation databases were particularly helpful, he added, because they allowed the researchers to gather a lot of data quickly, including the date the scandal was first reported, what happened in the scandal, who was involved and how it was announced.

Overall, the researchers gathered a sample size of 199 sexual harassment incidents, ranging from verbal sexual comments or requests to unwelcome physical advances and forced sexual relations.

Moehl Schack and his co-author, Mads Borelli-Kjær, found that the negative effect of a sexual harassment scandal at a company is worsened when the CEO is involved, causing a further 5.07 percentage-point negative impact, while an increased number of accusers caused an additional 1.37 percentage-point drop.

The researchers found, however, that if litigation has been or is expected to be filed, the effect is slightly mitigated by one percentage point, though the size of the monetary claim in a lawsuit didn’t really have an effect.

Additionally, sexual harassment scandals that were disclosed by the company rather than uncovered by the news media were less damaging to the firm’s market value.

“I think the main point to take away is … it’s a real and significant risk for companies,” said Borelli-Kjær, an associate at Boston Consulting Group in Denmark. “So it’s something to steer your policies toward avoiding, and it’s something to think about really, both in terms of hiring people, making sure they have a good track record, and making sure training supports an environment where stuff like this hopefully shouldn’t happen.”

Though both Borelli-Kjær and Moehl Schack expected the negative impact to worsen after October 2017, when allegations against Hollywood producer Harvey Weinstein caused a cultural reckoning over sexual misconduct, the only change they found was an increase in the number of news reports. Between January 2005 and October 2017, the researchers found 109 sexual harassment incidents; the remaining 90 occurred between October 2017 and 2019.

“So it more points to the attention being there and being much stronger afterward,” Moehl Schack said. “It’s not like investors or consumers or whoever trades the company reacts stronger. There’s just more of it.”

Borelli-Kjær and Moehl Schack started this research while working on their master’s thesis, with Ulf Nielsson, an associate professor at Copenhagen Business School, as their adviser. The work ended up being so promising, however, that the trio continued working on it after graduation in order to submit it to academic journals.

“This is such an important topic, but yet no one had really done anything,” Moehl Schack said. “It was like a blank spot, which I think we both thought that it deserved more attention.”

The study “#MeToo: Sexual harassment and company value,” published Jan. 6, 2021, in the Journal of Corporate Finance, was authored by Mads Borelli-Kjaer, Boston Consulting Group, Denmark; Laurids Moehl Schack, Boston Consulting Group, Denmark; and Ulf Nielsson, Copenhagen Business School.