Media coverage of crises almost certainly impacts the market valuation of companies, new research produced by media intelligence group Precise for CorpComms Magazine's inaugural conference 'Crisis management - cause, effect, recovery' reveals.
While it is impossible to extrapolate what the impact on a company's market capitalisation would be if there had been no media coverage of a crisis, the analysis revealed an inverse correlation of 0.81 between media coverage and a company's share price in the aftermath of a crisis. 'Statisticians pay attention after 0.75,' adds Marcus Gault, director at Precise.
Analysing 11 crises, ranging from airport operator BAA's handling of snow to Toyota and the recall of its cars, Gault found that crises 'cost a lot', adding: 'A crisis knocks an average of £12 billion from a company's market capitalisation.'
Speculation about the health of Steve Jobs, chief executive of Apple, after he took medical leave of absence knocked £5 billion from the technology company's market capitalisation, while the Deepwater Horizon oil spill knocked £50 billion from BP.
Direct link to media coverage
However, Precise's analysis found that as media coverage intensified so did the slump in BP's share price. Examining both the UK and US media across the first 60 days after the oil spill, Precise identified an inverse correlation of 0.92 between the print media coverage and BP's share price movement.
'That is statistically very significant,' says Gault. 'Any correlation over 0.9 is viewed as very close.'
In the first week after the disaster, there were approximately 100 print articles every day in the UK and US media, and 350 broadcast stories daily in America. The share price fell 2.07 per cent.
As media coverage intensified over the next month as President Obama banned drilling in new areas off the American coast and made his first visit to the Gulf Coast, reaching 300 print articles a day and approximately 2,200 broadcasts daily, the share price fell 19.06 per cent.
Then over the following month, as initial spill estimates doubled and the US announced a criminal investigation into the disaster, media coverage rose and the share price continued to tumble, falling a further 26.89 per cent.
'Our analysis found that the appearance of a chief executive can have an impact on coverage,' explains Gault. 'If they make an appearance early on after a crisis, with an apology and a plan of action, that can have a positive impact on how the media report the crisis and on the share price of the company.'
However, it is certainly true that the appearance of a poorly prepared chief executive, or one who is not comfortable under the gaze of media attention, can have a negative impact. 'When Tony Hayward resigned as chief executive of BP, the level of media coverage fell 60 per cent,' says Gault. 'He had become the story and a big part of the problem for the company.'
The analysis also revealed the different approach taken by the media in America and their counterparts across the Atlantic. The US focus centred on the environmental impact and the effect on Obama's presidency, while the UK media focused on the financial implications for BP and its shareholders. 'In general, we found that the media in different countries often focused on different angles but, consistently, the media in the country where a company was listed would focus more on the financial implications of a crisis,' says Gault.
Surprisingly, within the UK media, the BP crisis only featured on the front page of the Daily Mail twice, including the infamous occasion when Hayward went sailing with his son, in the 60 days after the oil spill. But it appeared on the front page of the Financial Times on 48 occasions.
Precise found that broadsheets consistently report on crises more than tabloids, but that when it came to the language used by both types of newspapers, it was very similar. For example, 45 per cent of the tabloid coverage of BAA and the delays at Heathrow as a result of heavy snowfall, used the noun 'chaos', which was used in 38 per cent of the broadsheet coverage. Both tabloids and broadsheets favoured 'disgraceful' while 'nightmare' was used in about five per cent of all coverage by tabloids, mid-market newspapers, such as the Daily Mail, and broadsheets.
'We found that if a chief executive, or a company, are seen to respond well to a crisis early on, the fall in their share prices was much less dramatic,' says Gault. 'But the response must be viewed as sincere and substantive, which is then reflected in the media coverage.'