Protecting Value in the Face of Mass Fatality Events

From Oxford Metrica:

Extreme events provide an opportunity for investors to review their opinions about a firm and, more pertinently, about its management. Additional corporate information is forthcoming around such events that would not be available in more normal circumstances. This new information is received and digested by markets which form new estimates of future cash flow performance expected from these firms. The share price rises or falls, suddenly and significantly, in the light of the new information and the new expectations. These sudden shifts in share price tend to be sustained; until the next extreme event.

Mass fatality events are as extreme as they get. The circumstances are, by their nature, a gruelling ordeal for the management of any firm. It is precisely under such circumstances, however, that senior management can demonstrate the stuff of which they are made. These situations are not only logistically challenging but also profoundly emotionally traumatic. Mass fatality events demand strong leadership, honest communication and compassion. The awareness of what managerial decisions and behaviour are required, and the courage to act accordingly, reveals qualities in managers appreciated by the markets.

The research results presented herein support our earlier findings and demonstrate that the care, honesty and sensitivity with which management responds to mass fatality events inspire confidence in investors and add substantial value. Furthermore, the results suggest that the presence of mass fatality in an extreme corporate event has a multiplicative effect on the value impact. The market judgement of managerial ability is decisive, considerable and sustained.

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