OpinionThings could be worse in the worst of all possible worlds

What is the worst thing that can happen to a company's share price? An attack by computer hackers? A product recall? Or a lawsuit?

British law firm Freshfields Bruckhaus Deringer sought an answer by studying 78 crisis-hit listed firms around the world.

While Asian investors are known for their speculative attitude to the stock market, the study showed that many investors did not make a snap response to the emergency. On the first day after a public crisis, only 48 per cent of the companies registered a fall in share price. But by the next day 54 per cent had a stock drop.

A month on, negative sentiment had peaked, with six out of 10 companies still affected. A year later, 53 per cent of the firms had not revived their share price to pre-crisis levels.

Freshfields found different crises had different impacts on share price. The hardest-hitting type in the short term was a "behavioural" crisis triggered by illegal activity such as money laundering or a rogue employee. In this situation, some companies shed half or more of their value on the day the scandal broke. But these firms had a better chance of regaining their pre-crisis valuation - after six months only 2 per cent were not back to pre-crisis levels.

In contrast, "operational" crises, such as major product recalls or environmental disasters, which affect normal operations, had little impact in share price in the first 48 hours of a crisis breaking. But these typically had the greatest long-term effect. Here, share price could fall as much 15 per cent in the first six months and a quarter of the firms were still down on pre-crisis levels a year later.