Investor Loyalty? Stock ownership doesn’t always drive consumer behavior

Frank Hodge

It seems perfectly rational to assume that a person who owns stock in a given company would be more likely to purchase its products and support policies that benefit it.

But that’s not always the case, according to research by Frank Hodge, the Michael G. Foster Endowed Professor of Accounting at the University of Washington Foster School of Business.

Hodge and co-authors Darren Bernard and Nicole Cade randomly granted study participants a small share of stock in Starbucks or one of three other retail firms, then tracked their subsequent related actions and attitudes over a period of months.

Carefully controlling for reverse causality—in this case, the tendency to buy what you know—the researchers discovered that stock ownership does not always drive consumer behavior in the ways they were expecting.

“We found very little evidence,” Hodge says, “that a small investment in a public company’s stock causes the average investor to change her product purchase behavior or adopt views and preferences that benefit the company.”

Of course, not everyone investor is “average.”

Supplemental analyses reveal that some investors are more likely to consciously support their investment. For instance, individuals who consume a lot of coffee are more likely do so at Starbucks if they own Starbucks stock. In a similar vein, people who vote—hardly a given in modern America—are more likely to support regulations that benefit a company in which they invest.

“Investor Behavior and the Benefits of Direct Stock Ownership” was published in the May 2018 Journal of Accounting Research.