Paper Title: Market Response to Racial Uprising

Abstract: Do investors see social movements as a crisis for firms or an opportunity? We use viral events related to the Black Lives Matter (BLM) movement to study this question. We construct a dataset of publicly traded firms with products and services used by U.S. law enforcement (“connected” firms), and we compare connected firms to their unconnected peers in the same industry. We find that connected firms with strong ties (based on discussion in annual 10-Ks) to policing experience significantly higher stock market returns than their non-connected peers in the days following viral events related to BLM, driven by investments in surveillance technologies and body-worn cameras. In addition, we find that well-performing firms reduce discussion of government agencies in their financial reports while maintaining their relationships with the police. Finally, we see greater returns for firms with strong ties to police after viral incidents involving Black victims than after viral incidents involving white supremacists or mass shootings. Overall, our findings suggest that investors believed the BLM movement would cause public spending on policing, for both reform and crime-control focused products and services, rather than leading to a reduction or “defunding” of police.

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