Editors' Note: This paper was under review with JMS prior to Donald D. Bergh's appointment as Associate Editor of JMS.
The Stock Market Reaction to the Hiring of Management Consultants: A Signalling Theory Approach
Article first published online: 23 JUL 2010
© 2010 The Authors. Journal of Management Studies © 2010 Blackwell Publishing Ltd and Society for the Advancement of Management Studies
Journal of Management Studies
Volume 48, Issue 3, pages 544–567, May 2011
How to Cite
Bergh, D. D. and Gibbons, P. (2011), The Stock Market Reaction to the Hiring of Management Consultants: A Signalling Theory Approach. Journal of Management Studies, 48: 544–567. doi: 10.1111/j.1467-6486.2010.00957.x
- Issue published online: 28 MAR 2011
- Article first published online: 23 JUL 2010
- Accepted manuscript online: 23 JUL 2010 12:00AM EST
Drawing from signalling theory, this study examines how the stock market reacts to the public announcement of the hiring of management consultants and whether it differentially values clients on the basis of their financial profitability and the brand-name of the engaged consultant. An event study analysis of 118 client firms that publicly announced the hiring of management consulting firms finds that the stock market, on average, responded positively and significantly to the engagement news. Regression analysis further reveals that the stock market reaction tended to be the highest for client firms that had the highest profitability levels. In addition, the stock market reaction to the hiring announcement was not related to the consultant's brand-name reputation; clients engaging the most reputable consultants (e.g. McKinsey & Company, Bain, Boston Consulting Group, Booz-Allen Hamilton) did not realize any different market response than those clients that employed the other consultants. Overall, most client firms that publicly announced the hiring of management consultants experienced a rise in their market value and those that had the highest financial profitability realized the highest increase. Further, the findings imply that there may be boundaries to reputational spillover benefits in partnering relationships.