The research explores how strategic integrity affects a company's market value, focusing on Bayer's restructuring from 1999-2006. It finds that when a company's actions align with its communicated strategy, it fosters trust among investors, resulting in positive stock performance, while misaligned actions lead to negative market reactions. The study emphasizes the importance of effective corporate communication in maintaining investor confidence and suggests that executives should be cautious with their statements regarding strategic decisions.

1. „What happens when Companies (don´t) Do
What they Said they would? Stock Market
Reactions to Strategic Integrity“
CHRISTOS P. MAVIS (1), ANSGAR RICHTER (1) CHRISTIAN LANDAU (2), SASCHA L. SCHMIDT (3), TONY SIMONS (4),
KAI STEINBOCK (5)
1 Surrey Business School, University of Surrey, Guildford, United Kingdom
2 EBS Business School, EBS University, Oestrich-Winkel, Germany
3 Center for Sports and Management, WHU – Otto Beisheim School of Management, Düsseldorf, Germany
4 Cornell University, College of Business/School of Hotel Administration, Ithaca, NY, USA
5 Siemens Management, Munich, Germany

2. Purpose of the Journal
• Does strategic integrity effects the market value of a
company?

3. Strategic integrity
• Definition = the extent to which an organization’s
strategic actions are aligned with its prior strategy
communication
strategy communicated actions

4. Behavioral integrity – leader follower
relationship
What happens if the actions match with the previous
communication?
• Effects:
 creation of trust, follower wellbeing and health
 Decrease level of absenteeism and turnover
 Enhance performance
 Favourable employees judgements about manager
= enhanced evaluation, if integrity is given

5. Research
• Strategy: portfolio restructuring of Bayer 1999-2006
• Evaluation: through shareholders at the stockmarket
• Hypothesis: strategic integrity will lead investors to build
trust (investors dont like surprises), that will
increase the demand for shares

6. Bayer´s strategy
• Move away from it´s traditional chemicals business
• Increase the business in healthcare and agriculture with
focus in America
• Focus of polymer activities in Asia
• Restructuring included nearly 100 sizeable corporate
transactions (sales and acquisation of companies)

7. Methods of assessing communication
• 234 written strategy documents (5000 pages) from 1999-
2006 were collected (annual reports, adhoc news,
presentations etc.)
• 80 strategic actions
comparison of communication events and actions (in the
same annual quarter or up to two quarters later)
 each action were scored as either „aligned“, „ambigous“
or „misaligned“

8. Methods of analyze the effect on
stock performance
• Searching for abnormal returns around the event
=actual return – expected return
• Benchmark for expected return was DAX30 index
• Suggestion: abnormal return in the specific time horizon
belongs to the event

9. Results
• Aligned: 56% (acquisitions: 76%)  +0.88%
• Ambigious: 24% (disinvestments: 31%)  -0.20%
• Misaligned: 20%  -0.65%
Aligned events outperformed Misaligned events by +1.53%
more favourable for the market
= strategic integrity is favourable for investors

10. Further investigations
• Bayer took advantage of aligned events by communication (press
statements, interviews etc.)
Reputational value in following strategy
• Explanation of ambigious events to shareholders in order to
declare them as in line with the strategy
• Very less communication of misaligned events

11. Problems of the Research
• Confounding events influence abnormal returns (i.e. earning
statements)  excluding those and got same results
• Overlapping events  excluding those and got same results
• Different models to calculate abnormal returns
 second check with compounded returns confirmed data
• Research about one firm may not generalizable to all firms
• (Price could be influenced by technical analysis of investors)

12. Implications for the practice
• Executives should avoid hasty statements about strategic actions
• Managers can make active use of corporate communication to
shape the expectations of the investors
• Corporate directors can use this approach for measuring
strategic integrity as a tool for reviewing board effectiveness