Strategic financial communication during corporate crises.

Strategic financial communication

during corporate crises.

Franca Sophia Volpert

Running Head: STRATEGIC FINANCIAL COMMUNICATION DURING CORPORATE CRISES

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Master’s Thesis

Strategic financial communication during corporate crises:

The influence of media news coverage on Volkswagen’s stock price during the

emission crisis.

Franca Sophia Volpert

11811277

Graduate School of Communication

Master’s Program Communication Science

Track: Corporate Communication

Supervisor: dhr. dr. P.H.J. (Pytrik) Schafraad

1st of February 2019

STRATEGIC FINANCIAL COMMUNICATION DURING CORPORATE CRISES

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Abstract

This study sheds some light on the relationship between news coverage and the stock market,

which has largely been ignored within the field of crisis communication, yet. A manual

content analysis of three major U.S. news outlets was conducted (N = 246) covering articles

about the Volkswagen Group’s emission crisis for a period of 17 month. Aggregated on a

weekly level, the media variables were by means of an OLS regression model related to the

opening price of Volkswagen’s common stock of the following week while controlling for the

opening price of the previous week as lagged dependent variable. Drawing on agenda setting

theory, this study detected a negative relation between media salience and Volkswagen’s

stock price. With regard to the predictive power of different crisis response strategies, the

findings suggest that compensation payments to the authorities exert a positive influence on

the stock price. Moreover, a negative moderating effect of a critical firm-specific tone was

revealed between the relationship of compensation payments to authorities and the stock

price. However, an influence of different levels of attribution of responsibility on the stock

price could not be identified. Hence, this empirical study contributes to the body of research

in several ways: First, it expands first-and second-level agenda-setting theory in regard to

investors, an understudied, yet important stakeholder group. Second, this study extends

recently conducted studies on this relationship by relating it to crisis communication research

and thus seeks to generate new insights and perspectives in the field. Lastly, the findings

inform communication managers in stressing the importance of media relations in times of

crises and give some further insights on how to successfully manage financial performance.

Key words: crisis communication, SCCT, strategic financial communication, financial

markets, news effects, investor agenda-setting, content analysis, Volkswagen Group


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Introduction

During organizational crises, stakeholder relationships and the organization’s

reputation are under pressure (Van der Meer, Verhoeven, Beentjes, & Vliegenthart, 2016) and

the financial performance is put at risk (Kleinnijenhuis, Schultz, Utz, & Oegema, 2015).

Those given facts render the affected organizations newsworthy and therefore generate much

publicity in the media, where the majority of stakeholders learns about an organizational crisis

(Coombs, 2007a). This assigns the media a critical role in crisis situations, since the way it is

reported on a crisis has great influence on how stakeholders perceive the information (Carroll

& McCombs, 2003; Hallahan, 1999). In this vein, it is often built on agenda setting theory

(AST) in order to substantiate how media coverage affects stakeholders (Carroll & McCombs,

2003). Communication research has generated manifold insights on the interplay between

corporations, the news media and the public during organizational crises (e.g. Van der Meer,

Verhoeven, Beentjes, & Vliegenthart, 2014, 2017) as well as the effects of different

situational crisis factors on organizational reputation (Coombs & Holladay, 2002).

On the other hand, remarkably little research has been carried out on examining the

impact of news media coverage on financial performance and shareholders, even though

information distribution through the media is crucial on the markets (Strycharz, Strauss, &

Trilling, 2018). Answering to the rising demand to integrate the fields of economics and

communications (Kleinnijenhuis, Schultz, Oegema, & van Atteveldt, 2013), recently,

communication science researchers included increasingly business-relevant outcome factors,

such as stock prices in their studies (cf. Fang & Peress, 2009; Van der Meer & Vliegenthart,

2018). While quite a few studies within the field of communication research focused by now

on the impact of mere media salience on the stock market (Fang & Peress, 2009; Strauß,

Vliegenthart, & Verhoeven, 2018), others took a more comprehensive view and investigated

attributes of the media coverage and its effects on stocks, such as emotions and sentiments

(Strauß, Vliegenthart, & Verhoeven 2016; Tetlock, 2007) or corporate topics (Strycharz et al.,

2018).

However, research that includes financial outcomes into the field of crisis

communication is to my best knowledge scarce (for exceptions see Chen, Ganesan, & Liu,

2009; Kleinnijenhuis et al., 2015). In accounting for these shortcomings and drawing on

agenda setting theory, this research aims to investigate whether and how the presence of crisis

response strategies in news coverage relates to the stock price. Thereby, it was made use of

the strategies developed by Coombs (2007a) within the Situational Crisis Communication


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Theory (SCCT). Furthermore, this study explores if media salience and firm-specific tone

affect the stock of a corporation facing a crisis. With respect to the most important situational

factors within a crisis (Coombs, 2007a), it is lastly examined whether different levels of

attribution of responsibility influence the stock price. The latter has to my best knowledge not

been investigated so far and draws attention to another important dimension when assessing

interrelations between the media and stock markets during corporate crises.

The case that was chosen to conduct this research is the Volkswagen Group’s emission

crisis breaking in September 2015. As being one of the largest of the last decades, the crisis

has triggered major consequences for the whole automotive sector. This selection is further

motivated by the fact that this crisis has an outstanding long crisis course characterized by

many turns and especially dramatic stock price fluctuations (Stewart, 2015). The news

coverage is analyzed by means of a manual content analysis of three major U.S. news outlets

and is related to the corporation’s common stock at NASDAQ stock market exchange.

Addressing the outlined gaps in research and trying to generate some insights on how to

address explicitly investors in corporate crisis situations, this research seeks to answer the

following research questions.

RQ1: How does media salience in a corporate crisis relate to the corporation’s stock price?

RQ2: How do different levels of attribution of responsibility in a corporate crisis relate to the

stock price?

RQ3: How does the presence of crisis response strategies relate to the stock price and are

there differences between different strategies?

RQ4: Does the firm-specific tone moderate the relationship between crisis response strategies

and the stock price?

Theoretical Framework

The financial market and the media

The efficient market hypothesis (EMH) states that markets are efficient as prices “fully

reflect” the available information and further assumes that investors react homogenously to

new information (Malkiel & Fama, 1970, p. 384). The basic assumption is the rational, profit-

maximizing individual who absorbs all available information and engages in rational

calculations in order to reach individual, self-serving goals (Davis, 2006a). However, several

behavioral finance as well as social sciences researchers have questioned the EMH arguing


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that participants in the stock markets might also be influenced by psychological factors, such

as emotions or mass behavior (Davis, 2006a; Strycharz et al., 2018). Moreover, the flow of

information is an “intrinsic dimension of the financial markets” (Thompson, 2013, p. 208).

Therefore, the mass media are a strong indicator for and also reflector of the consensus

opinion (Davis, 2006b; Thompson, 2013). Building mainly on agenda setting theory, social

sciences researchers hence claim that news media coverage influences stock market

movements to a certain extent (Pollock & Rindova, 2003; Strauß et al., 2016; Tetlock, 2007).

Furthermore, as outlined by Scheufele, Haas and Brosius (2011) it must be considered

that there are different kind of investors with different access to corporate information. While

professional or institutional investors draw on a broader range of resources, including regular

‘Analyst and Investor Calls’ where they are directly informed by representatives of the firm

about current (financial) issues or strategic decisions (Strauß, 2018), small investors mainly

rely on mass media coverage (Jang, 2007; Scheufele et al., 2011). These different levels of

information status further trigger herd behavior, meaning that investors do not act fully

rational, but comply with the consensus belief on the market (Bikhchandani & Sharma, 2000;

Lux, 1995). Moreover, scholars argue that professional investors still consult media coverage

to anticipate what private investors will do, which can be described by the third-person-effect

(Davison, 1983; Fang & Peress, 2009; Van der Meer & Vliegenthart, 2018). The impulse to

follow the herd in case of uncertainty is additionally motivated by the fear to be the only one

taking the wrong trading decision which can be traced back to an intrinsic human need for

conformity (Bikhchandani & Sharma, 2000; Davis, 2006a).

Investor agenda-setting effects

In order to explain the link between media news coverage and stock market

movements, the present research draws on agenda setting theory (AST) (Carroll & McCombs,

2003). AST determines that the mass media have an agenda-setting function, meaning that

issues salient in news coverage are transferred to the public’s agenda (McCombs & Shaw,

1972). Initially developed within the context of election campaigns, Carroll and McCombs

(2003) applied AST to business communication showing that media visibility of organizations

can have an influence on the public image of a firm. This core idea is described as first-level

agenda-setting (McCombs, Shaw, & Weaver, 2014). An explanation for why agenda-setting

effects occur and investors might consider news media when taking investment decisions is

the concept of ‘Need for Orientation’(NFO), which turned out to be a strong predictor of first-

level agenda-setting effects (Chernov, Valenzuela, & McCombs, 2011; McCombs et al.,


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2014). The extensive media coverage during a corporate crisis is expected to send a signal to

investors to take a closer look at the occurrences and reassess their investment.

Furthermore, not only the salience but also how corporate issues are presented in the

media can influence stakeholder’s evaluations. This is reflected in second-level AST, defined

as “the impact of the media agenda on the public agenda regarding the salience of the

attributes of these objects” (McCombs et al., 2014, p. 782) and comprehended by two

dimensions: substantive and evaluative attribute agenda-setting effects (Carroll & McCombs,

2003; Kiousis, Mitrook, Wu, & Seltzer, 2006). Thereby, the substantive dimension describes

the agenda of attributes. According to Carroll and McCombs (2003) “specific substantive

traits or contemporary issues associated with a firm” (p. 45) that are relatively salient in the

media are transferred to the image the public holds about a corporation. In other words, news

media articles highlight certain attributes and aspects of a corporate crisis. Drawing on this

notion, it is firstly assumed that if the media strongly discuss the attribution of responsibility,

investors adapt the presented perceptions and interpretations. Further, this aspect of AST

substantiates the assumption that different crisis response strategies conveyed in news

coverage might influence investor’s trading behavior during an organizational crisis.

Additionally, second-level agenda-setting is concerned with an evaluative level

(Carroll & McCombs, 2003), interpreted by Deephouse (2000) as ‘media favorability’. This

refers to the idea that the media do not only provide information, but moreover assessments

(Deephouse, 2000). More precisely, news media coverage conveys a specific tone (Carroll &

McCombs, 2003). Consequently, the evaluative level of AST implies that if the media report

very critical about the crisis management of a firm, it is likely that shareholders develop a

critical image of the organization as well (Deephouse, 2000). This in turn might induce

investors to reconsider their investment in that firm, strengthened by the assumption that

media coverage conveys the consensus belief on the market (Davis, 2006b).

First-level agenda-setting: Media salience

The key question in the literature on the interrelation between media coverage and the

stock market is whether media salience on corporate news affects firm-level returns. While

some scholars did not find evidence for the relationship between media coverage and stock

markets at all (Campbell, Turner, & Walker, 2012), others have found that corporate media

salience affects the financial performance (Fang & Peress, 2009; Strauß et al., 2018).

However, previous research focuses on different financial outcomes, such as the trading

volume, stock indexes or individual stocks and detected effects in different directions. Several


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researchers conclude that newspaper media coverage has a positive influence on closing

prices (Strycharz et al, 2018) and the transaction volume (Alanyali, Moat, & Preis, 2013).

Furthermore, economic tweets from news agencies on intra-day short-term intervals influence

the fluctuation of the Dow Jones Industrial Average positively (Strauß et al., 2018). On the

contrary, Van der Meer & Vliegenthart (2018) recently detected a negative influence of media

salience on corporate stocks, confirming previous work by Fang and Peress (2009).

Nevertheless, research on the influence of media coverage on the stock markets in

times of crises is rather scarce. An exception is a study by Kleinnijenhuis et al. (2015) who

detected agenda-setting effects of newspaper and online news coverage on financial markets

by focusing on the BP oil spill crisis. More specifically, media salience about the incident had

a negative effect on the BP share price. Drawing on these former findings and first-level AST,

it is assumed that the salience of a corporate crisis in the media is an indicator of changes in

the stock. Since a crisis is most likely associated with negative news and in line with Van der

Meer & Vliegenthart (2018) who argue with a general negativity among economic news, it is

hypothesized that news coverage affects the stock price negatively.

H1: The higher the salience of the corporate crisis in the news, the higher the chance of a

negative effect on the corporation’s stock price.

Substantial attributes (1): Responsibility on an organizational and individual level

Attribution theory (Weiner, 1985, 1986), which underlies the SCCT, states that the

“threat of a crisis is largely a function of crisis responsibility” (Coombs, 2007b, p. 136). This

means that in organizational crises the attribution of responsibility determines how severe the

crisis is perceived by stakeholders and therewith how long-lasting and profound reputational

and financial damage are (Coombs & Holladay, 2002; Ma & Zhan, 2016). Despite the key

role attribution of responsibility holds within the SCCT framework (Coombs, 2007a),

research investigating whether there is a difference between individual or organizational

attribution of responsibility in regard to stakeholder’s perceptions is scarce (for exceptions see

An & Gower, 2009; Verhoven, Van Hoof, Keurs & Van Vuuren, 2012). However, when

corporations face a crisis, it is not unusual that executives, often the CEO itself, apologize,

take responsibility and step back in order to reduce the organization’s reputational damage as

it was also the case during the Volkswagen crisis. Moreover, Verhoeven et al. (2012) found in

an experimental design that an organization’s reputation is damaged far greater in a crisis

situation than the individual reputation of a CEO. Organizational reputation in turn is closely


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intertwined with financial performance (Wei, OuYang, & Chen, 2017). This points to the

assumption that there might be indeed a difference regarding the financial damage between a

scenario where the whole corporation is blamed and one, where individuals are held

responsible for the misconduct. Further, it is even conceivable that there is a difference

between blaming executives or lower level employees: Executives represent the organization

and are therefore closely linked to it (Zerfass, Verčič, & Wiesenberg, 2016). Employees in

contrast can be seen as more independent and even decoupled from the organization. This

rationale is supported by the conceptualization of diminishing and denying crisis response

strategies that are advised to be matched with crisis of the victim type and aim to reduce the

organizational attribution of responsibility (Coombs, 2007a). Hence, by blaming a few

employees, the organization presents itself as a victim. Based on this logic and the evaluative

level of AST, the following explorative hypotheses will be tested.

H2: The higher the attribution of responsibility to the whole organization in a corporate

crisis, the higher the chance of a negative effect on the corporation’s stock price.

H3: The higher the attribution of responsibility to individual executives in a corporate crisis,

the higher the chance of a positive effect on the corporation’s stock price.

H4: The higher the attribution of responsibility to individual employees in a corporate crisis,

the higher the chance of a positive effect on the corporation’s stock price.

Substantial attributes (2): Crisis response strategies

A large body of research in crisis communication assesses crisis response strategies

and their effect on stakeholder’s perceptions (Benoit, 1997; Coombs, 2000; 2007a; Coombs &

Holladay, 2002). The primary theoretical framework is the Situational Crisis Communication

Theory (SCCT) (Coombs, 2000, 2007a). Although being criticized by some scholars (Austin,

Liu, & Jin, 2012), the model is still considered as a solid foundation for empirical research in

the field (cf. Ma & Zhan, 2016; Claeys, Cauberghe, & Vyncke, 2010; Zhou & Shin, 2017).

SCCT is a reconceptualization of Benoit’s (1997) Image Restauration Theory which accounts

for the strong similarities between the defined strategies. The main goal of crisis response

strategies is the protection of the reputation, more precisely it is aimed to influence

stakeholder’s attributions and perceptions and to minimize a negative affect (Coombs, 1995).

SCCT takes crisis responsibility as a link between the specific crisis situation and an

appropriate crisis response and draws thereby on an ‘accommodative-defensive’ continuum in

order to cluster the strategies (Coombs, 2007a). Thus, the more accommodative the crisis


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response strategies are, meaning that an organization addresses stakeholders in an open and

transparent manner, the more they perceive the organization as taking responsibility (Coombs,

2007a; Holladay, 2009).

Moreover, Benoit (1997) emphasizes that organizations passing through a crisis need

to address various stakeholders, such as customers, governmental regulators or shareholders.

Those audiences have different goals and values, indicating that not every stakeholder group

can be coincidently satisfied. Therefore, organizations need to prioritize audience groups

before choosing a strategy (Benoit, 1997). Following this notion, a study by Lamin and

Zaheer (2012) demonstrated that the general public and investors have in fact diverse interests

and consequently various perceptions and evaluations of strategies. Furthermore, the study

revealed that investors solely consider a decoupling strategy positively in the context of a

company defending legitimacy threats. Moreover, Chen et al. (2009) have shown that during a

product-recall crisis, proactive strategies affect the firm value more negatively than a passive

conduct. The study argues that this is due to the fact that the crisis and consequences are

considered as more severe when a proactive strategy is applied, which in turn implies further

financial losses. Additionally, Marcus and Goodman (1991) determined in an earlier study

that accommodative and defensive signals sent by the management during a crisis lead to

different shareholder reactions.

Considering these findings, it seems to be useful to divide between accommodative

and defensive strategies when assessing investors’ perceptions. In this regard, the substantial

dimension of second-level agenda-setting (Carroll & McCombs, 2003) becomes relevant in

order to explain the impact of different crisis response strategies on investors’ trading

behavior. Aiming to shed some light on if and how the presence of different crisis response

strategies in the media affect the stock market and extending on the findings by Chen et al.

(2009), the following hypotheses are posed:

H5: The higher the amount of accommodative crisis response strategies in a corporate crisis,

the higher the chance of a negative effect on the corporation’s stock price.

H6: The higher the amount of defensive crisis response strategies in a corporate crisis, the

higher the chance on a positive effect on the corporation’s stock price.

Evaluative attributes: Firm-specific tone

In communication science, second-level agenda-setting effects (Carroll & McCombs,

2003) have also been detected in terms of the relationship between media sentiment and


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market reactions (Kiousis et al., 2006). It is argued that the media affect investors’ opinion not

only due to the pure salience of topics, but especially by presenting information in a certain

way, referring to the evaluative dimension of AST (Scheufele & Tewksbury, 2007; Strycharz

et al., 2017). This argument finds support by behavioral finance research, stating that

investors’ decisions are not solely based on information, but are also substantially led by

emotions and moods (Bollen, Mao, & Zeng, 2011; De Long, Shleifer, Summers, &

Waldmann, 1990). The relationship between tone in news coverage and the stock market has

been researched with different definitions so far, reaching from emotionality or media

sentiment (Strycharz et al., 2018) and tone (Ahmad, Han, Hutson, Kearney, & Liu, 2016) to

media pessimism or optimism (Tetlock, 2007). Moreover, the findings were mixed. Whereas

some scholars detected a downward pressure on the market price when the media pessimism

is high (Tetlock, 2007) or the firm-specific tone negative (Ahmad et al., 2016) others did not

find any influence of tonal media coverage on stock prices at all (Strauß et al., 2016). The

scholars argue that it might be that the effects are actually reversed, hence, that the stock

market rather influences the media than vice versa.

It must be noted that research investigating in particular firm-specific tone is scarce,

most likely due to the fact that most firms do not appear frequently in the media (Ahmad et

al., 2016). According to Ahmad et al. (2016), a negative firm-specific tone leads to variations

in the stock returns, however, the relationship varied over time and between different firms.

Likewise, Strycharz et al. (2018) recently detected that high emotionality predicted stock

market fluctuations for two out of three analyzed firms. This research aims to further

investigate this relationship in the context of a corporate crisis, where the obstacle of scarce

data does not apply. Distinguishing between critical and supportive media news coverage, it is

explored whether the way how the firm’s crisis responses are portrayed in the media affects

the stock price. Explicitly this relation is investigated as it is assumed that the evaluation of

the crisis responses by the media has a strong influence on how investors perceive the actions

taken by the corporation (Carroll & McCombs, 2003). The media are seen as indicator for the

consensus opinion (Davis, 2006b), wherefore a critical assessment of the response strategies

might lead to investors reallocating their assets accordingly. Hence, drawing on the evaluative

dimension of second-level agenda setting, the following hypotheses will be tested.

H7: A critical firm-specific tone in the news coverage moderates the relationship between

crisis response strategy and the stock price negatively.


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H8: A supportive firm-specific tone in the news coverage moderates the relationship between

crisis response strategy and the stock price positively.

The presented hypotheses lead to the conceptual model of this research portrayed in Figure 1.

Figure 1. Conceptual Model.

Method

Case Selection

The Volkswagen Group’s emission crisis, belonging to the preventable crisis type

(Coombs, 2007a), was chosen for the present research, since it is considered as one of the

most far-reaching global corporate crises of the last decades. The car manufacturer

intentionally installed cheating software into their diesel vehicles which led to illegal levels of

pollution (Erwing, 2015). Criminal investigations were conducted against several involved

managers and one of the largest consumer settlements in U.S. history took place with a

payment of 15 billion dollars in fines (Bomey, 2016). Further, the Volkswagen shares

plummeted more than 30 percent (Stewart, 2015), which indicates that the markets reacted

very sensitively to the occurrences. Finally, the fact that the crisis has already been covered in

numerous other research projects (cf. Zhang, Marita, Veijalainen, Wang, & Kotkov, 2016),

further implies that the case is applicable to crisis communication research.

Data Collection

News coverage. Following previous research (Scheufele et al., 2011; Strauß et al.,

2016), this study performed a manual quantitative content analysis on newspaper articles from

H1

H5, H6

Stock price

Media salience

Crisis response strategy

Firm-specific tone

H7, H8

Attribution of responsibility

H2, H3, H4


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the leading U.S. news outlets The New York Times, USA Today and The Washington Post.

The selection is motivated by the large national circulation of those newspapers in the United

States (Misachi, 2017). Furthermore, The New York Times is according to financial journalists

“perceived as the ‘fifth estate’ and ‘an independent monitor’ of the financial markets” (Strauß,

2018b, p.12) and therefore expected to have major influence on the consensus opinion and

consequently the trading decisions of investors.

The articles were retrieved from the LexisNexis database by searching for the

keywords ‘Volkswagen’ or ‘VW’ in the headlines and ‘diesel’ in the whole article. This

approach guarantees that the articles included in the sample are actually relevant and the crisis

is not only mentioned as a side issue. The timeframe was set between the 20th of September

2015 until the 31st of January 2017. Due to limited resources, it was decided to focus on the

initial crisis phase, starting with the first rumors about the manipulation and ending with the

court settlement between the Volkswagen Group and the U.S. justice department in January

2017. The initial sample consisted of 288 mostly extensive news articles, however, following

the exclusion of some irrelevant and duplicate articles during coding procedure, the final

sample consisted of 246 articles (The New York Times n = 169, USA Today n = 54, The

Washington Post n = 23).

Stock market. In order to investigate whether news media coverage leads to agenda-

setting effects on the stock market, it is required to retrieve the data from a trading market

within the same country as the news media coverage. Since the price fluctuation between

Volkswagen Group’s common stock (VLKAF) is generally in synergy with the preference

stock (VLKPF) only one has been examined. Thus, the weekly opening price of the common

stock (VLKAF) was retrieved from the second-largest American stock exchange NASDAQ

via Yahoo Finance. It must be noted that the majority of Volkswagen stocks are traded at

Frankfurt Stock Exchange in Germany. However, due to arbitrage trading stock prices adjust

between the different stock markets permanently (Shleifer & Vishny, 1997), wherefore these

circumstances do not affect the present research.

Procedure and Measurement

The codebook (see Appendix C) underlying this research consists of five different

blocks. First, some general information such as the publication date or the length of the article

are captured. The following three sections focus on the media attention, the attribution of

responsibility and the crisis response strategies. Finally, the firm-specific tone is covered.


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Media salience. The salience of the crisis in the media was measured by the number of

articles per week. This variable was not captured within the codebook, but during the data

preparation phase. First, on the basis of the recorded date, articles were assigned to weeks.

Second, during the data aggregation, a new variable describing media salience by means of

the number of articles per week was created.

Attribution of Responsibility. In order to record the attribution of responsibility, it was

distinguished between an individual and an organizational level. The individual level was

further differentiated in executives and employees at lower levels. All three variables were

measured on a dichotomous scale whether they are present or not (0/1).

Crisis response strategies. In order to construct the codebook for the present study, the

strategies from Coombs (2000, 2007a) and Benoit (1997) were clustered to the two ends of

the ‘accommodative-defensive’ continuum. This leads to eight accommodative strategies,

which are on the one hand confession, apology and corrective action. The latter was further

divided into the three subcategories product recalls, clarification and rectification.

Furthermore, the bolstering strategy and four compensation strategies were used, divided into

the target groups customers, authorities, dealers and shareholders. On the other hand, the

strategies minimization and denial, further divided into deny intention and deny knowledge of

executives as well as scapegoat are clustered as defensive crisis response strategies. It must be

noted that the scapegoat strategy was redefined for the purpose of this study, stating that a

small group of employees is blamed for the crisis. Additionally, the variables no statement,

withhold information and impede investigations were added to the proposed defensive

strategies in order to capture if the corporation actually acts, e.g. other than promised in

official statements or does not react at all. Each strategy is operationalized on a dichotomous

scale, in particular whether they are present or not (0/1).

Firm-specific tone. The firm-specific tone was measured on a 5-point Likert scale

reaching from very supportive (1) to very critical (5). This operationalization is expedient

since it offers the possibility to record if the article is completely neutral. However, before

aggregating the data, the variable was recoded creating dummies for each point on the scale in

order to avoid a ‘canceling out’ effect.

Intercoder Reliability

Test coding and intercoder reliability testing was conducted with the help of a second

coder, who was familiar with crisis communication research. Since not all variables showed

sufficient reliability coefficients after a first round of coding, adjustments were made and


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more detailed instructions as well as examples were added to the codebook. Krippendorff’s

Alpha was eventually calculated by coding a random sample (n = 32) covering all crisis

phases, which is approximately ten percent of the whole sample (Neuendorf, 2002). After this

second round of reliability testing, almost all Krippendorff’s Alpha coefficients ranged from

.77 to 1, which indicates sufficient (> .67) to very good reliability (> .90) (Krippendorff,

2004) (all reliability measures are reported in Appendix 1). The variables withhold

information and deny intention reached due to their rare presence only a reliability coefficient

of .66, which is considered as not sufficient. However, as Lombard, Snyder-Duch and

Bracken (2002, 2003) state, for explorative research, which holds true for the present study,

lower coefficients can still be accepted. Therefore, the overall reliability of the codebook was

regarded as decent.

Data Aggregation

Following past research (Van der Meer & Vliegenthart, 2018), all data were

aggregated from the unit of single articles to a weekly level in order to create richer data

points constructed through several observations. The disadvantage of this procedure

introduced by Vliegenthart (2014) is that inferences about particular articles are not possible.

However, this is out weighted by the fact, that time series analysis with aggregated data

facilitates to see general patterns and allows for stronger claims about causality (Vliegenthart,

2014). Further, in regard to a crisis that passes through different crisis stages, data aggregation

is especially useful since new upcoming issues are very likely to be discussed for several days

in the media. The weekly level seemed appropriate, since especially during the initial crisis

phase new information were revealed frequently. Therefore, a rather low data aggregation

level was required in order to fulfill the premise of causality and to be able to test agenda-

setting effects.

The data aggregation was conducted by calculating the average of the variables,

particularly by adding all articles of a week (from Monday to Sunday) and dividing it through

the total amount of articles. This procedure allows to compare weeks with a different amount

of media salience. Weeks in which no articles were published were treated as zero values in

the aggregated dataset. Moreover, the variable measuring media salience, operationalized as

articles per week, was created during this procedure.

Data Lagging. In order to conduct the time series analysis and meet the causality

claim, the media data needed to be lagged in time in relation to the stock price data points

(Vliegenthart, 2014), meaning that the media variables of the aggregated weeks are related to


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the stock market opening prices of the following weeks. Consequently, the media variables of

week 1 were related to the stock price of week 2 within the analysis.

Method of Analysis

In order to investigate whether and how media salience and characteristics influence

the stock price of Volkswagen during the crisis multiple analyses were conducted. First, all

media variables were explored using descriptive statistics and visual graphs for the analysis

over time. Second, Pearson’s correlations as well as linear OLS regression models were

conducted to investigate whether there are linear associations and to determine the explained

variance of the stock price by the media variables. Furthermore, in order to assess whether the

inclusion of more variables in the model improves the explained variance of the stock price,

subsequently a hierarchical OLS regression, in particular a lagged dependent variable model

was employed. Thereby, the variables, whose regression model with the stock price were

(almost) significant, were included while controlling for the stock price of the week before as

a lagged dependent variable. In order to test the moderation effect of the firm-specific tone,

further multiple regression analyses were performed using PROCESS by Andrew F. Hayes

(Hayes, 2017). Due to space restrictions, only significant findings will be reported in detail.

Statistically not significant results will be reported in the Appendix. The assumptions were

tested for all significant regression models. This included tests for homoscedasticity, the

Durbin-Watson statistic, a test for normality distribution as well as multicollinearity for the

hierarchical OLS regression model.

Results

Presence of media variables

Descriptive statistics (Table 2 in Appendix B) demonstrate that on average three

articles per week were published focusing on the Volkswagen emission crisis

(M = 3.37, SD = 4.96). However, there are large differences within the crisis phases: Whereas

during the outbreak of the crisis up to 33 articles were released in one week, there were

several weeks at a later stage with no media coverage at all. With regard to attribution of

responsibility, most frequently the whole corporation is considered as responsible for the

installation of the defeat devices (M = .41, SD = .40), followed by individual executives

(M = .32, SD = .39). The most commonly used crisis response strategy by Volkswagen is a

defensive one, namely withhold information (M = .29, SD = .24), closely followed by deny


16

knowledge of executives (M = .22, SD = .32) and scapegoat (M = .20, SD = .31). The fact that

also accommodative strategies, in particular product recall (M = .20, SD = .32), and

compensation strategies such as compensation for customers (M = .23, SD = .38) are

frequently used, illustrates that the corporation did not follow one clear overall strategy.

However, when inspecting the media variables over time (Figure 2; Figure 3 and 4 in

Appendix B), it becomes apparent that the defensive strategies are rather present in the initial

crisis phase, whereas the accommodative strategies have been increasingly applied at a later

crisis stage.

Intercorrelation of media variables

The correlation matrix (Table 3 in Appendix B) implies that many media variables are

strongly correlated. In line with the expectations, different accommodative strategies are used

simultaneously. To give some examples, this holds true for obviously closely related

strategies such as apology and confession, r = .53, p < .001 or recall and compensation for

customers, r = .72, p < .001. Likewise, defensive crisis responses are present at the same time:

withhold information shows significant moderate and strong correlations with minimization,

r = .55, p < .001, deny intention, r = .60, p <.001 as well as deny knowledge of executives,

r = .44, p < .001. The latter is in turn strongly correlated with the scapegoat strategy,

r = .71, p < .001. Moreover, the use of the strategies by the organization is closely intertwined

with the attribution of responsibility as it is outlined in the news coverage. If lower level

employees are blamed, often the strategies scapegoat, r = .30, p < .05, deny knowledge of

executives, r = .45, p < .001 and deny intention, r = .34, p < .005 are present coincidently.

Relationships between media variables and stock price

In order to conduct the analysis as a first step linear regression analyses were

employed to evaluate which media variables contribute to the prediction of the stock price.

Media salience. The regression model with the stock price as dependent variable and

the media salience as independent variable is significant F (1, 71) = 10.72, p < .01. Therefore,

the model can be used to predict the stock price, although the strength of the model is only

weak, explaining 13 percent of the stock price fluctuation (R2 = .13).

Attribution of responsibility. Three linear regression models were run with the

variables measuring the attribution of responsibility as independent and the stock price as

dependent variable. The regression model testing the effect of responsibility of the

corporation is significant F (1, 71) = 6.90, p < .05 and can be used to predict the stock price.


17

The model explains 8,9 percent of the variance of the stock price, R2 = .09. In regard to

attribution of responsibility on an individual level, only the regression model with the

employees as independent variable was significant F (1, 71) = 4.96, p < .05, although the

effect was rather weak, R2 = .06.

Crisis response strategies. In order to assess if and which crisis response strategies

predict the stock price, likewise several linear regression models were conducted entering

each crisis response strategy separately as independent and the stock price as dependent

variable. None of the models is significant. However, the strategy compensation for

authorities is nearly significant, F (1, 71) = 3.31, p = .073, even if the model is very weak,

R2 = .03. Additionally, two separate linear regression models were run entering respectively

all summarized and as average computed accommodative and defensive crisis response

strategies as independent variable. However, both models are not significant, wherefore

further analyses with these constructs were not employed.

Figure 2

Time series for key variables that were included in the final research model.

Weekly opening price (VLKAF), NASDAQ stock market exchange

Responsibility: Employees

Compensation for authorities

Responsibility: Corporation

Media salience


18

OLS regression modelling

Finally, a hierarchical OLS regression model was employed in order to investigate

whether the inclusion of more news media variables in the model improves the explained

variance of the fluctuation of the stock price. All media variables that were revealed as

significant predictors in the previous conducted linear regression models were included in

blocks to the final model. Thus, the variables media salience, attribution of responsibility on

the corporation, attribution of responsibility on employees and compensation for authorities

were incorporated. Although, the linear regression model with the latter is not significant, the

variable was entered due to the potential explanatory power in a hierarchical model.

Additionally, the lagged stock price (one week) was added as a control variable.

Table 4 summarizes the results including the improvement of the model by adding

more media variables. The final model (Model 4) is statistically highly significant, R2 = .59,

F (5, 67) = 19.13, p < .001, explaining 58,8 percent of the variance of the stock price.

However, this very high explanatory power is mainly due to the addition of the stock price of

the previous week as control variable which leads to a strong statistically significant increase

compared to the previous model (Model 3), ΔR2 = .29, ΔF (1, 67) = 46.85, p < .001.

Nevertheless, solely the media variables (Model 3) still explain 30 percent of the variation of

the stock price, R2 = .30, F (4, 68) = 7.29, p < .001. Within the final model the variables media

salience, b* = -.28, t = -3.36, p < .001, 95% CI [-.92, -.24], compensation for authorities,

b* = .21, t = 2.50, p < .05, 95% CI [1.69, 15.03], as well as the lagged stock price, b* = .55,

t = 6.85, p < .001, 95% CI [.37, .67], are significant predictors of the stock price.

The robustness of the model is satisfying. The residuals are normally distributed, and

homoscedasticity is assumed. Further, the independence of observations is acceptable, as

deduced by a Durbin-Watson statistic of 2.05. Moreover, it was tested for multicollinearity.

The correlations are lower than .70 and the variance inflation factors (VIF) are in norm,

reaching from 1.06 to 1.18, which points that there is no problem with collinearity (Hair,

Black, Babin, & Anderson, 2014).


19

Table 4

Summary of hierarchical OLS regression model.

Variable Model

1 2 3 4

B SEB B SEB B SEB B SEB

Constant 146.50*** 1.39 147.05*** 1.82 146.87*** 1.75 70.99*** 11.17

Media Salience -.76** .23 -.71** .23 -.75*** .22 -.58*** .17

Responsibility: Corporation -4.50 2.87 -5.92* 2.82 -.4.09 2.20

Responsibility: Employees 8.60* 4.01 6.689 3.93 5.28 3.05

Compensation for authorities 10.92* 4.30 8.36* 3.34

Lagged stock price .52*** .08

R2 .13 .23 .30 .59

ΔR2 .13 .10 .07 .29

F 10.72** 7.02*** 7.29*** 19.13***

ΔF 10.72** 4.62* 6.45* 46.85***

Note. N = 73

*Significance at p < .05 **Significance at p < .01 ***Significance at p < .001

Moderating effect of firm-specific tone

In order to answer RQ4 and to assess whether the firm-specific tone moderates the

relationship between the crisis response strategy and the stock price, an extended analysis was

employed using PROCESS (Hayes, 2017). Thereby, the single crisis response strategy that

has shown to have a significant effect, namely compensation for authorities, was included as

independent variable while the stock price was entered as dependent variable. While

controlling for the other media variables and the lagged stock price as covariates, three

multiple regression models were conducted using the recoded dummy variables very critical,

critical and neutral tone. Due to the fact that the supportive and very supportive tone are

(almost) not present, the moderation could not be tested.

All three regression models are significant (see Table 5 in Appendix B), however, only

the model with the critical tone shows a significant interaction effect with the crisis response

strategy, F (7,65) = 14.86, p < .001. The independent variables predict 62 percent of the total

variance of the stock price, R2 = .62. Confirming the results of the previously employed


20

regression model, media salience, compensation for authorities as well as the lagged stock

price, entered to the model as control variable, are significant predictors of the stock price.

Moreover, the interaction effect significantly predicts the dependent variable, b = -23.25,

t = -2.15, p < .05, 95% CI [-44.88, -1.63].

Summarizing the findings

Based on these results, H1 can be supported: When the media salience concerning the

Volkswagen crisis increases, the stock price decreases during the observed crisis period.

Therefore, media salience can be used to predict stock market fluctuations within crisis

situations on a weekly aggregated level. With regard to the attribution of responsibility, H2,

H3 and H4 need to be rejected. When controlling for the other media variables, neither the

attribution of responsibility on an organizational nor on the two individual levels do

significantly predict the stock price. Furthermore, with respect to the crisis response

strategies, H6 needs to be clearly rejected. None of the defensive strategies, used in this

research did show a significant effect on the stock price. However, inferences about the effect

of accommodative crisis response strategies must be made in a more differentiated manner:

At least one of the accommodative strategies, namely compensation for authorities, did show

a significant effect on the stock price. Nevertheless, H5 needs to be rejected since the

direction of the effect is the opposite than predicted: An increase in the respective defensive

response strategy leads to an increase in the stock price as well. Finally, in terms of the firm-

specific tone, H8 cannot be answered at all due to the absence of a supportive tone in the

sample. However, H7 can be partially supported: While a very critical tone did not show an

interaction effect, a critical tone in the news coverage had indeed a moderating effect on the

relationship between the crisis response strategy and the stock price. This points that the way

a crisis response strategy is presented in the news does indeed affect investors’ perceptions.


21

Figure 5. Overview significant results.

Discussion

This study aimed to investigate whether media salience and characteristics of news

media coverage improve the prediction of corporations’ stock prices during a crisis.

Particularly, this study explored if attribution of responsibility, crisis response strategies and

firm-specific tone can be used to predict stock market fluctuations and thereby extends past

research that mainly focused on media salience and emotionality in non-crisis situations (Fang

& Peress, 2009; Strauß et al., 2018; Tetlock, 2007). This has been done by means of a case

study of the Volkswagen Group’s emission crisis. Thereby, news articles of three major U.S.

news outlets have been content analyzed and associated with the Volkswagen Group’s

common stock (VLKAF) at NASDAQ stock exchange.

The results reveal that media salience negatively influences the stock price. Hence,

investors seem to judge the severity of the crisis by how much attention the media as a

reflector of the consensus opinion (Davis, 2006b) devote to the issue. This finding answering

to RQ1 confirms earlier findings from research investigating the relationship in non-crisis

situations (Fang & Peress, 2009; van der Meer & Vliegenthart, 2018) as well as during the BP

oil spill crisis (Kleinnijenhuis et al., 2015). The negative influence can on the one hand be

justified by the general negativity bias related to economic news in the media (Van der Meer

& Vliegenthart, 2018), intensified by the uncertainty on the markets (Strauß et al., 2016).

Additionally, a crisis already implies negative news and it is very likely that the additional

media salience about the firm is devoted to the misconduct. This reasoning accounts for the

fact why other studies found a positive effect of media salience on the stock price in non-

crisis situations (Alanyali et al., 2013; Strycharz et al., 2018). However, as this study did not

b = - 23.25

b* = - .28 Articles per week

Stock price b* = .21 Compensation

for authorities

Critical tone Lagged stock price

b* = .55


22

systematically cover all characteristics of the media coverage, such as media frames (cf.

Nijkrake, Gosselt, & Gutteling, 2015), we can only suspect which media contents are

accountable for the downward pressure on the stock. With regard to the specific crisis

situation, it would be conceivable that the profound discussion of the legal and therewith

significant financial threats as well as the long-lasting speculations about the responsibilities

might have strongly contributed. This rationale revives the logic of SCCT that takes the crisis

responsibility as indicator about the severity of the reputational and hence financial damage

(Coombs, 2007a).

With regard to RQ2, the results do not suggest that different levels of attribution of

responsibility do affect the stock price. However, the attribution of responsibility on the

corporation as well as the employees are almost significant and might therefore still

contribute to stock price predictions, even if not evident in this case study. As a matter of fact,

it must be noted that the directions of those insignificant effects actually follow the predicted

logic: While in case the whole organization is regarded as responsible the stock price

declines, in contrast, when only a small group of employees is blamed, the stock price rises.

This can be obviously explained by the notion that in the latter case, the issue can be solved

much easier, faster and especially more cost-effective. Further, in regard to the reputational

damage which goes along with the financial performance of a corporation (Wei et al., 2017),

the accusation of a few employees constitutes the whole organization as a victim. This might

benefit the organization, since crisis of a victim type are considered to be less threatening

(Coombs, 2007b).

With respect to the crisis response strategies Volkswagen applied, this study did only

identify one accommodative strategy that influenced the stock price: The announcement of

compensation payments to the authorities appeared to have a positive effect on the stock

price. This finding contradicts the predicted direction, since it was assumed that concessions

are rather seen critical by investors due to the fact that they result in increased costs. Due to

the explorative character of this research, the results cannot be related to many past findings.

However, Marcus & Goodman (1991) equally concluded that accommodative signals by the

management of a corporation after a crisis serve stakeholder’s interests. Thus, in order to

make sense of this result, one could argue that the payment of fines to the authorities mark an

end of the crisis and are therefore appreciated by investors, who strive to reduce uncertainties

(Avery & Zemsky, 1998; Thompson, 2013). Following this notion, it is logical, that

compensation payments for customers on the contrary do not affect the price. First, those

payments are more unpredictable due to the high number of affected cars and the uncertainty


23

how to fix the defects. Second, a settlement with the authorities might have a more ultimate

character due to the regulatory power they hold. However, none of the other accommodative

and defensive strategies examined within this research did show a significant effect on the

stock price. This lack of effects can be explained by taking the application of the strategies by

Volkswagen over time into account. The corporation did not follow one stringent strategy, on

the contrary, Volkswagen rather used opposed strategies at the same time and repeatedly

during different crisis stages. This obscure pattern of conduct and the many turns during the

crisis course complicates it for investors to get a clear picture about the occurrences.

Therefore, the rather limited findings in regard to RQ3 can be traced back to these

circumstances.

Moreover, with regard to the firm-specific tone, the effect of a supportive tone could

not be tested due to the absence within the sample. However, this research found a

moderating negative effect of a critical tone on the relationship between the compensation

strategy for authorities and the stock price. As past studies have argued, this might be due to a

general skepticism and negativism in the media (Strauß et al., 2016; van der Meer &

Vliegenthart, 2018), strengthened by the fact that a crisis is automatically associated with

negative issues. In the present case, compensation payments, generally seen as positive

reputational actions (Coombs, 2007a), conveyed with a critical tone in the news coverage

seem to trigger skepticism. The findings on an aggregate weekly level are in line with

research by Ahmad et al. (2015) who found that an increase of firm-specific negative tone

leads to a lower firm-level stock return on the next day. Despite not focusing on firm-specific

but general tone, multi-directional influence of sentiments and tone on financial outcomes

were likewise detected in several previous studies (Strycharz et al., 2018; Tetlock, 2007).

However, the results also contradict previous findings by Scheufele et al. (2001) or Strauß et

al. (2016) who did not detect a moderating effect of emotions in the media on a daily

aggregated level. Drawing conclusions from these findings, it must be reasoned that a critical

tone does not show consistent effects on the corporation’s stock price, since an effect of very

critical tone could not be identified. Due to these ambiguous findings, inferences must be

made very carefully, and the results can be rather seen as a first indication than a clear

comprehension.

All in all, the findings suggest that media salience and characteristics can help to

predict the fluctuation of stock prices during a crisis. However, only very few in the present

study examined characteristics of the news media coverage appear to influence the stock

price. In this sense, it is important to emphasize the explorative character of this study, which


24

intended to extend crisis communication research by focusing on corporate financial

performance. Following this notion, the results are quite promising and moreover the amount

of explained variance exceeds many studies exploring the interdependence between media

coverage and stock prices within non-crisis situations (cf. Strycharz et al., 2018; van der Meer

& Vliegenthart, 2018). This makes certainly sense considering that investors are particularly

sensitive during a crisis. According to investor surveys, the ‘quality of management’ is

besides ‘financial status’ one of the most important factors when judging about firms (MORI,

1998, 2000 as cited in Davis, 2006b). Hence, during a crisis when a firm’s survival is

potentially at stake (Coombs, 2007a), the management’s performance is exceedingly subject

of attentive observations. Additionally, uncertainty facilitates herd-like tendencies (Avery &

Zemsky, 1998), meaning that investors increasingly monitor how the market reacts, e.g. by

considering media coverage and as a result response collectively. On these grounds, agenda-

setting effects seem to intensify compared to regular times, which accounts for the stronger

effect sizes. However, the importance of the financial status emphasizes that news media only

help to a certain extent to explain market volatility, since there are obviously a variety of

other, mostly financial factors such as balance sheets that exert influence.

Concluding, the findings clearly demonstrate with regard to strategic financial

communication that media relations matter – especially during times of crises that are

characterized by high uncertainty. By providing information and evaluations about

corporations, media hold the power to form expectations and shape opinions which in turn

affect the environment and conditions under which firms compete (Rindova & Fombrun,

1999; Pollock & Rindova, 2003).

Limitations and Future Research

This study comes along with a number of limitations. First, this study only examines

one specific organizational crisis, and therefore, generalizations are hard to draw.

Comparative research is called for to explore if the findings in regard to the Volkswagen case

also applies to other corporate crises.

Another major limitation concerns the media sample. Due to availability reasons, only

general news outlets have been incorporated. However, future research should equally include

financial newspapers such as The Wall Street Journal (cf. Alanyali et al., 2013; Tetlock,

2007) when exploring investor agenda-setting effects. Additionally, as past research suggests

(Bollen et al., 2011; Strauß et al., 2017; Zhang, Fuehres, & Gloor, 2011) the integration of


25

online news media sources should be considered to obtain a more comprehensive

understanding of stock market reactions. This is required based on the logical reasoning that

globalization and digital technologies increase the pace information are spread via (social)

media. Thus, print news coverage is possibly already outdated when published (Davis, 2006a;

Van der Meer & Vliegenthart, 2018). Concurrently, the stock markets nowadays are

characterized by algorithm based high-frequency trading (Kleinnijenhuis et al., 2013).

However, the choice of the media and the time lag must always be aligned. The causality

claim only holds true if the cause precedes the consequences (Vliegenthart, 2014). In this

sense, one can question the methodological decision to aggregate the data. However, it was

argued that a crisis passes through different stages and this procedure allows to limit the

amount of zero values, which could distort the results. With regard to future research, it

should yet be considered to define crisis stages in order to facilitate the detection of patterns

in the use of crisis response strategies.

The selection of the news outlets was based on the logic of AST and the consensus

market opinion, that is expected to be reflected in the leading national newspapers. However,

in fact we are neither able to identify the individual news consumption of investors, nor do we

know on which specific media information investors base their trading decisions (Scheufele et

al., 2011). Besides, the fact that many shares are part of a portfolio and therefore not traded

independently is a general difficulty in assessing isolated media effects on the stock markets

(Scheufele & Haas, 2008). The situation is aggravated by the notion that there are different

kind of investors as outlined by Scheufele et al. (2011). This uncertainty is a ‘black box’ and

seems to be the major challenge for studies investigating media effects on the stock market

(Scheufele et al., 2011). Capturing the latter notions, future research is encouraged to include

a broader range of news sources in order to take different kind of investors and their possibly

different habits of news consumption into account.

Lastly, as already indicated, this study shows some weaknesses in regard to the

measurement of the firm-specific tone conveyed in the media. The results are rather

ambiguous and likewise are the findings from previous studies. The various definitions and

operationalizations that have been applied by scholars to measure this construct, including

automated analysis tools such as dictionaries (cf. Tetlock, 2007; Strauß et al., 2016; Strycharz

et al., 2018) imply that an accurate approach has not been found so far. Therefore, future

research is encouraged to systematically investigate the (moderating) influence of tone and

emotionality in the media coverage on the stock market.


26

Implications

This study has contributed to communication science literature in several ways: First,

from a theoretical perspective, this study showcased how to integrate crisis and financial

communication research by drawing on the SCCT framework and relating it to a firm’s

financial performance. Thereby, AST was extended to the so far scarcely investigated

stakeholder group of investors, contrary to the extensive body of research on the public’s

perception of crisis communication (e.g. Coombs & Holladay, 2002; Claeys et al., 2010). The

results suggest that especially first-level agenda-setting effects occur during a corporate crisis.

Media salience on a corporate crisis leads to a downward pressure on the firm-level stock.

Moreover, also second-level agenda setting effects have been detected on a substantial as well

as evaluative dimension, demonstrating the validity of all aspects of AST for investors.

Additionally, the well-investigated situational crisis factor attribution of responsibility

(Coombs, 2007a) was examined on a new level, differentiating between an organizational and

two individual levels, in particular between executives and employees. In this sense, this

study will hopefully guide future research by pointing out a new dimension of crisis

communication research and showcasing how to approach the topic empirically.

Moreover, several practical implications can be deducted from the results of this study.

First, the general importance of media relations when managing financial performance in

times of crises must be stressed. As other researchers suggested, the presentation of crisis

responses in media news coverage might appear to be more credible than information a

corporation provides via their own channels (Pollok & Rindowa, 2003; van der Meer &

Vliegenthart, 2018). However, this does not mean that communication managers should

constantly be in touch with journalists. Instead, the fact that media salience influences the

stock price negatively during a crisis points that practitioners are advised to carefully consider

timing and evidence base. This counts especially for providing statements of the CEO or

executives due to the fact that this kind of information usually lead to high media awareness

(Zerfass et al., 2016). Consequently, constant media monitoring and evaluations are required.

Thereby, communication managers should especially pay attention to a media discourse about

legal consequences, since results of this study reveal that strategies related to legal issues

affect the stock price.

Furthermore, with regard to the choice of crisis response strategies, the results indicate

that accommodative strategies do not necessarily negatively affect the stock price as assumed.

Quite the contrary: Accommodative strategies can have a positive impact if they indicate at


27

the same time that the issue will be solved near-term and the firm can return to normal levels.

Lastly, this study implicates that communications managers should prioritize when facing a

corporate crisis which stakeholder group is most important and incorporate this notion into

choice of crisis response strategies (Benoit, 1997; Lamin & Zaheer, 2012).


28

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35

Appendix A

Table 1

Intercoder Reliability. Variable Krippendorff’s Alpha

Media Attention

Salience (scale) .92

Salience (word count) .87

Attribution of Responsibility

Organizational Level: Corporation .80

Individual Level: Executives .93

Individual Level: Employees .87

Crisis response strategies

No relation to any crisis response strategy 1

Accommodative

Confession .92

Apology .80

Corrective action: Product recall 1

Corrective action: Clarification .82

Corrective Action: Rectification .77

Compensation for customers .84

Compensation for authorities .92

Compensation for dealers **

Compensation for shareholders 1

Bolstering .79

Defensive

No statement of the organization 1

Withholding of information .66*

Minimization .79

Denial: Deny intention .66*

Denial: Deny knowledge of executives .87

Impede investigations .80

Scapegoat .89

Tone

Firm-specific tone .83

Note. N = 32

*variable is mostly not present

** variable is not present at all, Krippendorff’s Alpha cannot be calculated


36

Appendix B

Table 2

Descriptive Statistics for the media variables.

Variable Mean SD

Media Attention Number of articles per week 3.4 4.96 Attribution of Responsibility Organizational Level: Corporation .41 .40 Individual Level: Executives .32 .39 Individual Level: Employees .13 .28 Crisis response strategies No relation to any crisis response strategy .10 .23 Accommodative Confession .11 .23 Apology .06 .17 Corrective action: Product recall .20 .32 Corrective action: Clarification .18 .29 Corrective action: Rectification .14 .28 Compensation for customers .23 .38 Compensation for authorities .11 .26 Compensation for dealers .03 .00 Compensation for shareholders .00 .02 Bolstering .03 .17 Defensive No statement of the organization .14 .27 Withhold information .29 .24 Minimization .16 .29 Denial: Deny intention .12 .22 Denial: Deny knowledge of executives .22 .32 Impede investigations .16 .25 Scapegoat .20 .31 Firm-specific tone Very Critical Tone .28 .33 Critical Tone .39 .38 Neutral Tone .13 .26 Supportive Tone .01 .04 Very supportive Tone .00 .00

Note. N = 73


37

Figure 3

Presence of accommodative strategies over time.

Note. Data are aggregated on a weekly level.

Confession Apology

Corrective action: Product recall Corrective action: Clarification

Corrective action: Rectification Compensation for customer

Compensation for authorities Compensation for dealers

Bolstering Compensation for shareholders


38

Figure 4

Presence of defensive crisis response strategies and attribution of responsibility over time.

Note. Data are aggregated on a weekly level.

Withhold information No statement from the organization

Deny intention to cause harm Deny knowledge of executives

Impede investigations Minimization

Scapegoat Responsibility: Corporation

Responsibility: Employees Responsibility: Executives

Table 3

Correlation Matrix.

Note. N = 73 *Significance at p < .05 **Significance at p < .01 ***Significance at p < .001

Variable 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

1 Lagged stock price

2 Stock price .65***

3 Media salience -.16 -.36**

4 Responsibility: Corporation -,16 -.30* .21

5 Responsibility: Executives .02 .10 .23 -.23

6 Responsibility: Employees .11 .26* .05 -.23 .46***

7 No relation .16 -.09 .07 .10 .11 -.06

8 Confession -.07 -.09 .43*** .31** .25* .09 -.09

9 Apology -.05 -.10 .35** .25* .15 -.04 -.08 .53***

10 Recall -.09 .01 .10 .39** -.09 .09 -.15 .18 .06

11 Clarification -.24* -.14 .23 .14 .40** .23 -.11 .32** .43*** .18

12 Rectification -.15 -.13 .19 -.05 .39** -.07 -.06 .22 .29* -.11 .55***

13 Compensation customer -.01 .06 .01 .43*** -.12 .00 -.22 .26* .29* .72*** .17 -.04

14 Compensation authorities .08 .21 .12 .18 .03 .15 -.17 .43*** .03 .40*** .01 -.19 .46***

15 Compensation dealers -.05 -.05 -.06 .28* -.16 -.10 -.08 -.08 -.07 -.07 -.12 -.10 -.07 -.00

16 Compensation shareholders -.03 -.12 .06 .17 -.10 -.06 -.05 .03 .07 -.01 -.00 -.06 -.07 -.05 -.02

17 Bolstering -.12 -.11 -.04 .05 .10 -.05 -.08 .31** .45*** -.10 .24* .25* .10 -.08 -.04 .10

18 No statement -.14 -.16 .11 -.06 .10 .17 -.07 .04 .19 -.09 .03 .13 -.10 -.01 -.07 -.06 -.10

19 Withhold information -.11 -.02 .08 -.01 .27* .50*** -.03 -.10 .00 -.07 .21 .14 -.05 -.12 .10 .18 -.09 .40***

20 Minimization -.19 -.16 .13 .15 .38** .24* -.09 .21 .24* -.05 .45*** .26* .00 -.10 -.08 .28* .26* .19 .55***

22 Denial intention -.03 -.05 .09 -.05 .34** .34** .10 -.02 .05 -.05 .15 .03 -.13 -.10 -.09 .38** -.03 .18 .60*** .65***

22 Denial knowledge .00 -09 .18 -.20 .61*** .45*** .00 .23* .24* -.06 .25* .21 -.07 -.08 -.14 .05 .18 .23* .44*** .48*** .53***

23 Impede investigations -.04 -.01 .11 -.05 .37** .23 -.04 .24* .27* -.07 .19 .10 .00 -.03 -.10 .08 .24* .24* .19 .25* .19 .70***

24 Scapegoat -.01 -07 .06 -.25* .76*** .30* -.02 .13 .12 -.07 .38** .50*** -.09 -.15 -.13 -.08 .18 .05 .28* .49*** .41*** .71*** .41***

25 Very critical tone -.01 -.02 .31** .05 .57*** .35** .12 .08 -.05 .01 -.04 .15 -.10 .06 -.15 .08 -.12 .17 .23 .26* .32** .41*** .29* .33**

26 Critical tone -.07 -.08 .08 .38** .047 .04 -.02 .21 .25* .27* .42*** .44*** .38** .15 .29* -.02 .05 .14 .25* .13 -.03 .03 .10 .12 -.35**

27 Neutral tone .06 -.04 -.01 .12 -.16 -.15 .20 -.04 -.05 .01 -.12 -.09 -.02 .01 -.08 .02 .22 -.02 -.08 -.11 .05 .06 -.07 -.11 -.16 -.29*

STRA

TEGIC FIN

AN

CIA

L CO

MM

UN

ICA

TION

DU

RIN

G C

OR

POR

ATE C

RISES

39


40

Table 5

Moderating effect of firm-specific tone.

Variables Tone

Very critical critical neutral

B SEB B SEB B SEB

Constant 71.26*** 11.42 74.86*** 11.09 74.89*** 11.29 Compensation for authorities 8.29* 3.40 12.99** 3.94 8.61* 3.31

Very critical tone 1.16 2.91

Critical tone -1.00 2.35

Neutral tone -.57 3.20

Interaction effect 11.68 12.15 -23.25* 10.83 28.19 15.38 Responsibility: Corporation -3.90 2.27 -4.49 2.32 -4.29 2.19

Responsibility: Employees 4.61 3.36 4.65 3.03 5.88 3.07

Media salience -.62** .18 -.64*** .17 -.57** .17 Lagged stock price .53*** .08 .51*** .07 .50*** .08

R2 .59 .62 .61 F (df1, df2)

13.35*** (7, 64) 14.86***

(7, 65) 14.53*** (7, 65)

Note. N = 73

*Significance at p < .05 **Significance at p < .01 ***Significance at p < .001


41

Appendix C

CODEBOOK

Introduction

The purpose of this study is to explore whether news media coverage in regard to the

Volkswagen Group’s emission crisis contributes to the prediction of stock prices. In order to

measure this, newspaper articles from three major U.S. newspapers, namely The New York

Times, USA Today and The Washington Post are content analyzed and the results are related

to the corporation’s common stock (VLKAF) at NASDAQ stock exchange market. The

timeframe of the sample is set between September 18th, 2015 and January 1st, 2017 – from the

initial crisis phase to the court settlement between the Volkswagen and U.S. justice

department – in order to be able to take the crisis course into consideration. This approach

implies that the newspaper articles deal with different stages and issues of the crisis. The

coders should judge on each article independently and should not take the overall crisis

history into account.

The codebook is divided into five main sections. In the beginning general formal questions

regarding the article are posed, whereas in the second section the relevance as well as the

salience are queried. The third block focuses on the responsibility for the crisis on individual

and organizational levels. In the fourth block coders have to evaluate which crisis response

strategies of the company tare mentioned in the newspaper articles. The final fifth block

focuses on the firm-specific tone predominant in the article.

The articles were retrieved from the database LexisNexis. The article number, date and

headlines are listed in a separate article list. Coders should familiarize themselves with the

structure of the sample document before starting to code.

Please consider: The Volkswagen Group owns besides its core brand VW also the

automotive brands Seat, Škoda, Audi, Bentley, Bugatti, Ducati, Lamborghini, Porsche, MAN

as well as Scania. Especially Audi and Porsche are also proven to be involved in the emission

crisis and need therefore to be considered in the analysis.

General coding rules

1. Please read the entire article first before taking coding decisions.

2. Every code refers to the entire article (unit of analysis).

3. Please read the information and examples provided in the codebook carefully, since

they give you important information to take the right coding decision.


42

I. General Information

V1.1. Coder

1 = Franca

2 = Second Coder

V1.2. Article Number

Document the Number of the article given in the article list here (e.g. VW001)

– open answer –

V1.3. Date

Document the Date of the article in the form DAY-MONTH-YEAR (DD-MM-YYYY)

– open answer –

V1.4. Newspaper/Source

Document the name of the newspaper the article originates from.

1 = The New York Times

2 = USA Today

3 = The Washington Post

V1.5. Title

Please copy the title of the article here.

– open answer –

V1.6. Length of the article

Please copy the length of the article here (word count).

– open answer –

II. Media Attention

V2.1. Salience

In order to measure the media attention, it must be evaluated how much of the article is

actually devoted to the Volkswagen emission crisis. Please consider the whole article

including headline and teaser.


43

- Code Almost All (<100%) if the whole article deals with the crisis and the respective

firm.

- Code Majority (<75%) if the crisis and the respective firm is the main issue covered in

the article, but also other issues or consequences are discussed.

- Code Approximately half (<50%) if half of the article deals with the crisis and the

respective firm, but other issues are equally present.

- Code Minority (<25%) if the crisis or the respective firm is mentioned as a side issue.

- Code Nothing (0%) if the crisis or the respective firm are not mentioned in the article.

If this is the case the article will be excluded from the sample. Moreover, code this

category in case the article is not relevant for other reasons, such as if it is a

duplicate.

5 = Almost all (< 100 %)

4 = Majority (< 75 %)

3 = Approximately half (< 50 %)

2 = Minority (< 25 %)

1 = Nothing (0 %) (If this is the case, stop coding and continue with the next article)

V2.2. Salience word count

How much of the article is devoted to the crisis? Please count all the words and insert the

number.

– open answer –

III. Attribution of Responsibility: Individual and organizational level

The following variables measure who is held responsible in the media news coverage for the

misconduct triggering the crisis. In regard to the present research it is first distinguished

between responsibility at an organizational level, meaning the whole corporation is blamed,

and at an individual level. Furthermore, on the latter it is differentiated between executives

and employees from lower levels of the organization, such as technicians. The variables are

not meant to be exhaustive, meaning that if the article implies that individual members of the

organization are responsible but on the same time the whole corporation´s responsibility is

discussed, code “present” for all the respective variables.


44

V3.1. Organizational Level: Corporation

The whole corporation is held responsible for the misconduct and therewith the cause of the

crisis.

Example: ''Volkswagen made this disaster; it is its responsibility to fix it,'' Dan Becker,

director of the Safe Climate Campaign at the Center for Auto Safety, said in a telephone

interview.

1 = present

0 = not present

V3.2. Individual Level: Executives

Individual organizational members, in particular the CEO, board members or other executives

are held responsible for the misconduct and therewith the cause of the crisis.

Example: In the past, Volkswagen was dominated by strong personalities with a top-down

style of decision making that some critics have said may have contributed to decisions that led

to the scandal.

Or: The automaker's 68-year-old chief executive, Martin Winterkorn, faced mounting

pressure to take responsibility for the scandal and resign.

1 = present

0 = not present

V5.3. Individual Level: Employees

Individual organizational members, in particular technicians or other lower level employees

are held responsible for the misconduct and therewith the cause of the crisis.

Example: Volkswagen said employees had been suspended in connection with the scandal but

did not name them. The company said it would hire an American law firm, which it did not

identify, to conduct an internal investigation of the emissions deception. Berthold Huber, a

labor leader who is the acting chairman of the company's supervisory board, attributed the

deceit to ''developers and technicians'' in the company's motor development operations.

Or: Mr. Horn, who has since resigned, said he was told already in May 2014 that

Volkswagen technicians had a plan to make the cars compliant with clean air rules.

1 = present

0 = not present


45

IV. Crisis response strategies (adapted and modified from Benoit, 1997; Coombs,

2000 & Coombs, 2007)

There are two main crisis response strategy types that will be analyzed within this research, in

particular accommodative and defensive response strategies. The codebook assigns the crisis

response strategies (Benoit, 1997; Coombs, 2000, 2007a) to these two categories. Each

strategy needs to be coded whether it is present in the article or not. If several strategies are

named in an article code all of them. The crisis response strategies are not meant to be

exhaustive. Please pay special attention to quotes of the company, respectively of the CEO,

management board members or spokespersons of the organizations. Those statements contain

cues and relevant information about the response strategies the company applies.

Please note: If the article only summarizes what has happened in an earlier crisis stage and

thereby mentions earlier crisis response strategies do not code them. It is aimed to assess the

strategies used at the present time when the article became published.

V4.0. No direct relation to the company's crisis response strategies

The article discusses the crisis and its consequences, but does not refer to statements,

announcements or actions by the company. Code Yes (1) for this variable only if the article

does not contain any accommodative or defensive crisis response strategy listed below.

1 = Yes

0 = No

1. Accommodative crisis response strategies

V4.1. Confession

The firm confesses and admits that they have installed defeat devices and therewith broken

the law. This variable does only focus on the fact that the firm admits the misdeed. Whether

the misdeed has been done intentionally or not is not relevant for this variable.

Example: While companies often face large fines for wrongdoing, it is far less common for

them to admit to breaking the law like Volkswagen did.

1 = present

0 = not present


46

V4.2. Apology

The corporation asks for forgiveness and addresses all affected stakeholder with its apologies.

Thereby, the company admits their mistakes or that they have taken advantage of the

consumers’ trust.

Example: "I personally am deeply sorry that we have broken the trust of our customers and

the public," Martin Winterkorn, Volkswagen's CEO, said in a statement.

1 = present

0 = not present

V4.3. Corrective Action Strategies

The following three variables represent several corrective action strategies. If more than one

of them are mentioned in the article, code all of them. The different corrective action

strategies are not meant to be exhaustive.

V4.3.1. Product Recalls

The corporation tries to correct the misdeed and aims to settle the problem through arranging

product recalls or fixing the cars by installing software updates or providing new hardware.

Example: Volkswagen made an offer: It would conduct a voluntary recall, or service

campaign, to fix the problem in certain model year 2010 to 2014 diesel vehicles.

1 = present

0 = not present

V4.3.2. Clarification

The corporation states that they will clarify what has happened and what has caused the

incidents. It is promised that necessary steps to solve the problem will be taken. This includes

actions such as executing investigations by internal personnel or external firms.

Example: Martin Winterkorn, CEO of Volkswagen, has ordered an investigation, led by

people unconnected to the carmaker.

1 = present

0 = not present

V4.3.3. Rectification, including changes in the management

The company takes actions to prevent a repetition of the crisis in the future. The corporation

claims that they will take the incident as occasion to restructure the firm and do better in the


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future in order to prevent that such incidents will happen again. This strategy includes

changes in the management board or replacement of other executives as well as changes in

the company’s culture.

Example: Earlier, Reuters and CNBC reported that Volkswagen U.S. CEO Michael Horn is

expected to leave the company after less than two years on the job.

Or: ''We are now creating a different and better company, a new Volkswagen and we want to

change the company's culture so that there will be better communication among employees,''

the CEO said.

1 = present

0 = not present

V4.4. Compensation

The following four variables represent different applications of compensation strategies, in

particular compensations for different target groups. The firm accepts its responsibility and

claims to (financially) compensate and reimburse who has been affected by the misdeed. If

more variables are present in the article, code all of them. The different compensation

strategies are not meant to be exhaustive.

V4.4.1. Compensation for customers

The company holds out the prospect or agrees to compensate affected customers. These

compensations can vary, being either solely financially or including other actions such as

buyback options.

Example: Already, Volkswagen has been trying to minimize the damage to sales by offering

cash incentives to existing owners if they buy or lease a new car, as well as big discounts for

all buyers.

1 = present

0 = not present

V4.4.2. Compensation for authorities

The corporation holds out the prospect or agrees to compensate the authorities by paying fines

in order to compensate for the environmental impact of its manipulated cars.

Example: The company agreed to pay the United States $4.3 billion in fines.

1 = present

0 = not present


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V4.4.3. Compensation for dealers

The corporation holds out the prospect or agrees to compensate the car dealers.

Example: Volkswagen told its dealers that it would provide financial guarantees and extra

bonuses to ''stabilize your profitability in the near term.

1 = present

0 = not present

V4.4.4. Compensation for shareholders

The corporation holds out the prospect or agrees to compensate shareholders.

Example: Volkswagen considers providing financial compensations for shareholders who

accuse the company of not complying with its disclosure obligations to shareholders and the

capital markets.

1 = present

0 = not present

V4.5. Bolstering Strategy

The corporation tries to limit the negative attitudes of stakeholders towards the firm initiated

through the crisis by reminding the public about their former good reputation.

Example: “We will solve these issues and then focus back on what we are known for - high

quality engineering work.”, the CEO Müller stated.

Or: ''We will overcome this crisis,'' Mr. Müller said. ''We will emerge a stronger company.''

1 = present

0 = not present

2. Defensive crisis response strategies

V5.1. No statement of the organization

The organization refuses to make statements in regard to the accusations or current

investigations.

Example: Volkswagen officials did not respond to calls for comment Tuesday evening about

the K.B.A. action.

1 = present

0 = not present


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V5.2. Withholding of information

The organization withholds information or does not contribute on issues discussed publicly.

Example: The company did not provide information on how long it expects the fix to take or

whether it plans to offer compensation to vehicle owners.

Or: Mr. Horn, Volkswagen's top leader in America, was a convenient punching bag at the

House subcommittee hearing, pointing out that he could not promise to provide documents

from the corporate headquarters because there are ''quite a number of people above me.''

1 = present

0 = not present

V5.3. Minimization

The extent of the damage and the seriousness of the crisis is downplayed. The company tries

to minimize the crisis by claiming that the misconduct was just a minor incident, or it turns

out that the corporation has hold back information earlier or underrated the damage.

Example: "We are not a criminal brand or group," he said. "We haven't been that.”

Or: Volkswagen also admitted, just last week, that it underreported the levels of carbon

dioxide produced by about 800,000 of its diesel and gasoline vehicles in Europe and that had

it exaggerated their fuel economy.

1 = present

0 = not present

V5.4. Denial

The following two variables represent several ways of denial. Those variables do not aim to

measure if the corporation denies the facts, but the denial of knowledge or intention as an

attempt to downplay the crisis.

V5.4.1. Deny intention to cause harm

The company rejects that they have intentionally done harm or broken the law. This variable

does not refer to the fact that the corporation denies that mistakes have been made, but that

the misdeeds have been made deliberately.

Example: But Volkswagen has denied that the software in those cars was designed to cheat on

emissions tests, and they would probably not be eligible for the cash compensation.

Or: ''We didn't lie,'' the CEO said. ''We didn't understand the question first and then we

worked since 2014 to solve the problem.''


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1 = present

0 = not present

V5.4.2. Deny knowledge of executives

The corporation rejects that board members and other executives have known about the

manipulation.

Example: A spokeswoman for Volkswagen noted that Mr. Horn in 2014 ''did not know, nor

was he informed, that Volkswagen vehicles included the defeat device software.''

Or: Mr. Winterkorn, who resigned on Wednesday, has said several times that he had no

knowledge of software that was intended to fool emissions tests.

1 = present

0 = not present

V5.5. Impede Investigations

The article clearly indicates that the corporation rejects to collaborate with the authorities and

thereby impedes the investigations. This variable includes circumstances where the

corporation does not provide e.g. relevant documents or misleading information.

Example: Volkswagen may also have to compensate customers for misleading them about a

car's performance with working emission control systems.

1 = present

0 = not present

V5.5. Scapegoat

The corporation blames a small group of people within the organization for the misdeed.

Example: Mr. Horn, who has since resigned, said he was told that Volkswagen technicians

had a plan to make the cars compliant with clean air rules.

1 = present

0 = not present

V. Firm-specific tone

This variable measures the tone towards the firm. Please read the entire article first and take

the coding decision not regarding the overall tone predominant in the article, but the firm-

specific tone, in particular how its crisis responses in regard to the crisis are evaluated. If the


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article is completely objective and does not contain any critical or supportive emotions,

choose the central bullet in the scale.

Very Supportive (1)

Supportive (2)

Neutral (3)

Critical (4)

Very Critical (5)

Strategic financial communication during corporate crises.

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