Stakeholder Orientation and Stock Investors’ Response to Earnings Reports: Evidence from Stakeholder Constituency Statutes

ABSTRACT This study examines whether stakeholder orientation, which allows directors to consider the interests of stakeholders beyond shareholders, affects investors’ responses to earnings announcements, as measured by earnings response coefficients (ERCs). We hypothesize that stakeholder orientation increases ERCs by mitigating managerial opportunism and excessive risk‐taking. Exploiting the staggered adoption of constituency statutes across U.S. states as a natural experiment, we find that stakeholder orientation increases ERCs through these channels. We further show that investors in stakeholder‐oriented firms respond more strongly to earnings news even when underlying earnings quality is held constant, suggesting that such earnings are perceived as more credible. The effect is stronger in settings with greater stakeholder conflicts, weaker monitoring, and higher consumer orientation. Overall, our findings provide evidence that stakeholder orientation enhances investor responsiveness to earnings reports by improving both the credibility and informativeness of reported earnings.