Included Studies

• Rothwell, G. S. (1989). Stock market reaction to nuclear reactor failures. Contemporary Economic Policy, 7(3), 96-106, doi: https://doi.org/10.1111/j.1465-7287.1989.tb00571.x

Abstract: Current proposals to reform regulation of the commercial nuclear power industry ignore the potential of financial market sanctions on poor reactor management. This paper examines investor reaction to the automatic shutdowns following equipment failures at nuclear power plants from 1978 to 1985. Compared with a portfolio of nuclear utilities, the daily return to common equity of the owner of a failed reactor dropped by 0.24 percent after two trading days but increased by 0.24 percent four trading days later. Investors are averse to reactor failures but correct initial negative responses once they learn that the reactor is not damaged.

• Capelle-Blancard, G., & Laguna, M. A. (2010). How does the stock market respond to chemical disasters?. Journal of Environmental Economics and Management, 59(2), 192-205., doi: https://doi.org/10.1016/j.jeem.2009.11.002

Abstract: In this paper, we examine the stock market reaction to industrial disasters. We consider an original sample of 64 explosions in chemical plants and refineries worldwide over the period 1990–2005. A quarter of the accidents resulted in a toxic release, and half of them caused at least one death or serious injury. On average, petrochemical firms in our sample experience a drop in their market value of 1.3% over the two days immediately following the disaster. Using multivariate analysis, we show that this loss is significantly related to the seriousness of the accident as measured by the number of casualties and by chemical pollution: each casualty corresponds to a loss of $164 million and a toxic release to a loss of $1 billion.

• Carpentier, C., & Suret, J. M. (2015). Stock market and deterrence effect: A mid-run analysis of major environmental and non-environmental accidents. Journal of Environmental Economics and Management, 71, 1-18, doi: https://doi.org/10.1016/j.jeem.2015.01.001

Abstract: We analyze the stock market reaction to 161 major environmental and non-environmental accidents, reported on the front page of the New York Times for half a century. To determine if the market induces a real deterrence effect, we extend the event windows up to one year. On average, the market reacts negatively and enduringly to the announcement of an accident. However, this average effect is largely driven by the airline industry and by government interventions. The estimated average compounded abnormal return following environmental accidents does not differ from zero after one year. This does not exclude, in severe events affecting large firms, huge losses in equity value, but the significant negative cumulative abnormal returns estimated immediately after an environmental accident in previous studies do not persist. Our results suggest that in a market driven by institutional investors, the deterrence effect is likely to be weak.

• Feria-Domínguez, J. M., Jiménez-Rodríguez, E., & Merino Fdez-Galiano, I. (2016). Financial perceptions on oil spill disasters: Isolating corporate reputational risk. Sustainability, 8(11), 1090., doi: https://doi.org/10.3390/su8111090

Abstract: The aim of this paper is to isolate the corporate reputational risk faced by US oil and gas companies—as listed on the New York Stock Exchange (NYSE)—after recent oil spill disasters. For this purpose, we have conducted a standard short-horizon daily event study analysis aimed at the calibration of the financial perceptions caused by these environmental episodes between 2005 and 2011, and the drop effect on the market value of the firms analyzed. We not only find significant negative impact on the stock prices of the companies analyzed but also significant cumulative negative abnormal returns (CAR) around the accidental spillages, especially for the longest event windows. Corporate reputational risk is also identified and even measured by adjusting abnormal returns by a certain loss ratio. A new metric, CAR(Rep), is then proposed to disentangle operational losses and the reputational damage derived from such negative financial perceptions.

• Katsikides, S., Markoulis, S., & Papaminas, M. (2016). Corporate social responsibility and stock market performance: An event study approach. International Journal of Engineering and Advanced Technology, 6(2), 1-8., link: https://www.researchgate.net/profile/Stelios_Markoulis/publication/312040237_Corporate_Social_Responsibility_and_Stock_Market_Performance_An_Event_Study_Approach/links/59626bf2a6fdccc9b144d922/Corporate-Social-Responsibility-and-Stock-Market-Performance-An-Event-Study-Approach.pdf

Abstract: This paper examines the relationship between Corporate Social Responsibility and stock market performance. To examine this relationship the “event-study” methodology is utilised to examine five events, two from the oil industry (BP and Exxon oil spills) and three from the banking industry (HSBC – money laundering; Barclays and Royal Bank of Scotland – Libor scandal). Results suggest that, apart from the HSBC money laundering event, all other events appear to have a significant effect on stock market performance as the shares of the firms involved tend to exhibit significant negative average abnormal returns during the period which followed the event. We also find some differences regarding the time-frame of the effect, since for some events it took more time to get into “full swing” and lasted longer.

• Makino, R. (2016). Stock market responses to chemical accidents in Japan: An event study. Journal of loss prevention in the process industries, 44, 453-458., doi: https://doi.org/10.1016/j.jlp.2016.10.019

Abstract: Despite recent major chemical process accidents in Japan, the top management teams of firms still avoid taking costly risk reduction measures because of their low perceived impact on firm performance. The disclosure of information on accident risks might motivate managers to enhance workplace safety because of the subsequent evaluation of firms by investors in stock markets. If the disclosed risk information is newly available for investors, firms with a high risk of accidents would receive a poor evaluation by stock markets and thus managers would take risk reduction measures to prevent stock prices from declining. In this study, we conduct an event study analysis to examine whether accident risk information is already reflected in stock prices, using data on the Japanese chemical industry. The results of our event study show that the estimated cumulative average abnormal returns of firms’ stocks are significantly negative after severe accidents actually occurred. This finding implies that risk information is not already reflected in the stock prices of Japanese chemical firms and that the disclosure of accident risk information has the potential to motivate the top management teams of firms to reduce their firms’ accident risk.

• Huang, H., Wu, D., & Gaya, J. (2017). Chinese shareholders’ reaction to the disclosure of environmental violations: a CSR perspective. International Journal of Corporate Social Responsibility, 2(1), 1-16., doi: https://doi.org/10.1186/s40991-017-0022-z

Abstract: In the past decades, Corporate Social Responsibility (CSR) has attracted increasing attention, with Corporate Environmental Responsibility (CER or Environmental CSR) playing an ever important role. This paper aims to study whether and how Chinese shareholders are sensitive to the disclosure of environmental violations. Specifically, the issue is measured by the performance of the Chinese stock market. In order to answer this question, the authors conduct a two-dimensional “environment-as-a-resource” framework, which assumes that the pressure on stock price after an environmental violation is from both externalities and internalities. The external pressure comes from environmental regulations, media attention, customer sensitivity and so on. The internal pressure is rooted in firm level actions, for example, previous pollution control and previous CSR performance. The paper starts by addressing theories of corporate social responsibility, corporate environmental management and market value management, followed by the advancement of foreign and domestic research. Then, based on the events in the Shanghai and Shenzhen stock exchanges from 2002 to 2014, the authors calculate the events’ cumulative abnormal return. The explanatory factors in the regression model include external impacts of time trend and media attention; together with internal impacts of previous pollution situations and CSR performance. Complementing the notion of “environment-as-a-resource”, the regression results reveal that, facing an environmental violation, Chinese shareholders react negatively. The negative reaction becomes weaker as time goes by, and is stronger in the years with heavier media environmental attention. Furthermore, some policy suggestions are proposed in light of the current CSR implementations by Chinese companies: 1) Strengthen the government’s environmental scrutiny management to help the market punish environmental violators. 2) Encourage environmental accounting and environmental auditing for public companies. 3) Build up a broad environmental information platform comprising of interactions between the government, corporations and media. 4) Cultivate environmental awareness of company managers so it becomes worthy to invest in environment resources and gain better awareness of environmental responsibility.

• Nunes, M. F. (2018). Supply chain contamination: An exploratory approach on the collateral effects of negative corporate events. European Management Journal, 36(4), 573-587., doi: https://doi.org/10.1016/j.emj.2017.09.003

Abstract: The present work investigates the impact of negative events on supply chain partners. Through a contextualised discussion of the literature on supply chains and on the efficient market hypothesis, it is proposed that negative events negatively impact the market value of suppliers and customers. Following an exploratory approach, 307 companies (21 source companies, 158 suppliers and 128 customers) comprehending 20 cases of environmental disaster, corporate social irresponsibility, operational failure, corporate fraud and corruption were analysed. Results show that in 12 out of the 20 cases investigated supply chain partners indeed had their market value penalised, encompassing, to a greater or lesser degree, all five categories of cases considered. Yet, while both suppliers and customers absorbed the outcomes of negative events, suppliers seem to be at greater risk of sustaining such losses. Likewise, cases in which the source companies were also negatively affected seem to be slightly more prone to cause losses among suppliers and customers. In this sense, the concept of supply chain contamination is coined to address the observed outcomes. The study offers new insights into the applicability of the efficient market hypothesis and contributes to the assessment of the dissemination of negative events in supply chains, a theme that, despite its potential detrimental consequences for firms and stakeholders, has not yet been sufficiently treated in the Management literature.

• Lo, C. K., Tang, C. S., Zhou, Y., Yeung, A. C., & Fan, D. (2018). Environmental incidents and the market value of firms: An empirical investigation in the Chinese context. Manufacturing & Service Operations Management, 20(3), 422-439, doi: https://doi.org/10.1287/msom.2017.0680

Abstract: We examine firms listed on the Shanghai/Shenzhen Stock Exchange to investigate stock market reactions to 294 Chinese manufacturing firms involved in 618 environmental incidents between 2006 and 2013. Through our event studies,we find empirical evidence of a significantly negative stock market reaction to announcements of environmental incidents. Our empirical analysis reveals that Chinese firms with a higher government share (of ownership) and recognition of social responsibility tend to be less affected by such incidents; however, Chinese firms with stronger personal political ties (i.e., top management teams or board members with concurrent or prior government appointments) are actually affected more when environmental incidents occur. Moreover, environmental incidents caused by Chinese firms can have a significantly negative impact on the market value of their overseas customers.

• Wood, L. C., Wang, J. X., Duong, L. N., Reiners, T., & Smith, R. (2018). Stock market reactions to auto manufacturers’ environmental failures. Journal of Macromarketing, 38(4), 364-382., doi: https://doi.org/10.1177/0276146718781915

Abstract: The automotive sector must meet strict regulations to increase mobility while reducing emissions to demonstrate environmental stewardship. Trust in the promise of a sustainable Fahrvergnügen was broken with recent scandals like Dieselgate denting the confidence of regulators and consumers. Overpromising on sustainable innovative technology resulted in unethical behavior, deceit, and failure to meet promised standards. We consider to what extent societal disapproval was evident in the stock market reaction to these events. We sampled 41 announcements (1984 to 2016) and observed a mean stock market reaction of -1.01%. There was no difference in the stock reaction in firms failing governmental vs. voluntary standards and more negative reactions for events following Dieselgate or when compensation was offered. The severity of the reaction to unethical misuse of environmental credentials should encourage maintaining promised environmental performances as a macromarketing strategy.

• Kowalewski, O., & Śpiewanowski, P. (2020). Stock market response to potash mine disasters. Journal of Commodity Markets, 20, 100124., doi: https://doi.org/10.1016/j.jcomm.2020.100124

Abstract: We examine the stock market reaction to natural and man-made disasters in potash mines. We use a sample of 44 mining accidents worldwide over the period 1995-2016. A quarter of the accidents were the result of a natural disaster, such as flooding, that often ended in the closure of the potash mine. The remaining accidents were caused mainly by human error, and almost 50% were work accidents often associated with serious injury or death. On average, mining firms experience a drop in their market value of 0.89% on the day of a disaster. However, we observe a significantly stronger response of the stock market to natural events. Indeed, the regression analysis confirms that the firm’s market loss is significantly related to the seriousness of the accident. On the other hand, we do not find any other micro- or macro-level factors that determine the stock market reaction following a disaster.

Various

• Blacconiere, W. G., & Northcut, W. D. (1997). Environmental information and market reactions to environmental legislation. Journal of Accounting, Auditing & Finance, 12(2), 149-178, doi; https://doi.org/10.1177/0148558X9701200203

Abstract: Environmental issues have attracted national attention and are becoming a focus at many jirms. This paper examines the relation between stock price reactions to the Superfund Amendments and Reauthorization Act (SARA) of 1986 and environmental information. We include alternative information sources in a test of the value relevance of environmental data. We joind some evidence that chemical firms with more extensive environmental disclosures included in their 10-K reports had a less negative reaction to SARA, while jim with greater exposure to Superfund costs (based on EPA data) had a more negative market reaction. A primary contribution of our research is the jinding that both jinancial statement environmental disclosures and estimated Superfund costs have incremental value relevance.

• Diltz, J. D. (2002). US Equity Markets and Environmental Policy. The Case of Electric Utility Investor Behavior During the Passage of the Clean Air Act Amendments of 1990. Environmental and Resource Economics, 23(4), 379-401, doi: https://doi.org/10.1023/A:1021351226459

Abstract: We examine electric utility investor reaction surrounding twenty-two milestones associated with the passage of the Clean Air Act Amendments of 1990. Results suggest that investors did not react sharply tothe passage of the Amendments. To the extentthat statistically significant effects wereobserved, we interpret the results as moreindicative of investor concern over resolutionof uncertainty surrounding the politicalprocess and resulting provisions than ofconcern over the expected costs of compliancefollowing passage of the Amendments. Weobserved little, if any, difference betweenutilities subject to Phase I restrictions andthose not subject to Phase I. Finally, changesin monthly excess returns appear to haveresulted from changes in U.S. interest ratesand investor concern over power industryderegulation. We view our results as importantbecause any wealth effects due to environmentalregulations represent a real economic costassociated with their implementation. In thissense, we view the results as “good news” forU.S. environmental policy makers.

• Cañón-de-Francia, J., Garcés-Ayerbe, C., & Ramírez-Alesón, M. (2007). Are more innovative firms less vulnerable to new environmental regulation?. Environmental and Resource Economics, 36(3), 295-311, doi: https://doi.org/10.1007/s10640-006-9023-1

Abstract: The aim of this paper is to examine the effectiveness of the first European Pollution Emissions Register (EPER), a regulatory instrument based on the publication of the environmental performance of firms exceeding specified pollution limits. The Multivariate Regression Model (MVRM) is applied to capture the disciplinary effect of the EPER. So, we first perform an analysis to determine whether the publication of the EPER has a negative effect on the market value of the listed firms. Secondly, we consider the possibility of the publication of the EPER affecting the market value of firms which could be included in the EPER but are not because their emissions do not exceed the specified pollution limits. Finally, we prepare an index to compare the environmental results of the firms and analyse whether the consequences of publishing the EPER are worse for firms with high relative pollution records.

• Ramiah, V., Martin, B., & Moosa, I. (2013). How does the stock market react to the announcement of green policies?. Journal of Banking & Finance, 37(5), 1747-1758, doi: https://doi.org/10.1016/j.jbankfin.2013.01.012

Abstract: The impact of environmental regulation on the French stock market is investigated by using event study methodology and asset pricing models. The impact of environmental regulation on the stock prices of environmentally friendly businesses and polluters is assessed. Additionally, we estimate the change in systematic risk following the introduction of new regulations. According to the results, the French stock market is particularly sensitive to the environmental regulation embodied in the European Union Emissions Trading System and less so to the regulation on water, soil and air. The chemicals, oil and gas industries exhibit negative reactions, whereas other polluters (such as construction and materials, and industrial transportation) produce positive abnormal returns.

• Ramiah, V., Pichelli, J., & Moosa, I. (2015). Environmental regulation, the Obama effect and the stock market: some empirical results. Applied Economics, 47(7), 725-738, doi: https://doi.org/10.1080/00036846.2014.980572

Abstract: Following the signing of the Kyoto protocol in 2005, a new wave of green policies emerged with the intention of protecting our planet. This study explores the effects these policies have on capital markets. In particular, we assess how the risk and return of US industrial portfolios react to the announcement of green policies. Event study methodology and asset pricing models are used to that end. We document negative abnormal returns and increase in systematic risk for the biggest polluters whereas environmentally friendly businesses are affected to a lesser degree. An apparent Obama effect is observed, resulting from the 2008 outcome of the US presidential election.

• Tamechika, H., & Okuda, S. Y. (2017). Stock price responses to the eco-points programme for electrical household appliances: evidence from Japan. Applied Economics, 49(58), 5856-5864, doi: https://doi.org/10.1080/00036846.2017.1352076

Abstract: This article examines the Japanese government’s ‘Project for Green Consumer Electronics to Promote Business through the Use of Eco-points’ and its economic impact on consumer electronics firms’ stock prices. There has been little research on the economic effect of this project. In order to achieve our aim, we employ event study methodology. Our results show that stock prices responded positively to programme adoption, thereby indicating that the programme had positive effects on the related firms’ performance. The results also show that the programme’s economic effects gradually decreased over each subsequent programme extension. This probably occurred because the programme targeted durable goods, which consumers do not replace frequently.

• Philipich, K. (2018, September). The Impact of EPA Regulation and US Supreme Court Oversight on the Shareholders of US Utilities Utilizing Coal. In Evolving Energy Realities: Adapting to What’s Next, 36th USAEE/IAEE North American Conference, Sept 23-26, 2018. International Association for Energy Economics, link: http://www.usaee.org/usaee2018/submissions/OnlineProceedings/Complete%20Manuscript.pdf

Abstract: The vast majority of previous market-based research regarding the EPA has focused on individual firm effects due to violations. The current study attempts to identify industry/portfolio effects due to the issuance of new regulations and to any subsequent legal efforts challenging these new regulations. The issuance of both the draft and final versions of the Clean Power Plan is analysed for any market reaction that may have occurred to U.S. coal-burning utilities. Additionally, three U.S. Supreme Court rulings are analysed which: (1) directly related to the legitimacy/legality of the Clean Power Plan, or (2) were intervening and may have impacted the plan itself or the market’s estimate of its chances to survive court challenges. The analysis revealed a significant and negative market reaction to the release of the final version of the Clean Power Plan. Additionally, the analysis identified a significant and positive market reaction to a U.S. Supreme Court ruling that struck down previous attempts by the EPA to regulate the mercury emissions of power plants because the EPA had not considered the cost to the economy of these regulations. However, this market reaction may be limited to a group of smaller utilities and/or those with thinly traded securities.

• Zhao, X., Fan, Y., Fang, M., & Hua, Z. (2018). Do environmental regulations undermine energy firm performance? An empirical analysis from China’s stock market. Energy research & social science, 40, 220-231, doi: https://doi.org/10.1016/j.erss.2018.02.014

Abstract: This paper examines the impact of environmental regulations on the stock price of listed fossil based energy companies in China. Based on the event study methodology, we found that environmental regulations have a variety of impacts on the stock prices of China’s listed fossil based energy companies. While legislative regulation has negative impacts on the stock prices, both environmental information disclosure (EID) and administrative regulation have positive impacts, and the impacts of market-based regulations (MBR) are firstly positive, then become negative. Further, the negative impacts of legislative regulation and the positive impacts of EID are the greatest. These results suggest that close attention should be paid to EID by policy makers. Moreover, we found that the impacts on firms vary depending on their nationalization level and scale. A surprising finding is that the negative impacts of environmental regulations are greater on listed fossil based energy companies with higher level of EID than on those with lower level of EID, which poses a challenge for policy makers in designing EID policies.

• Tian, M., Xu, G., & Zhang, L. (2019). Does environmental inspection led by central government undermine Chinese heavy-polluting firms’ stock value? The buffer role of political connection. Journal of Cleaner Production, 236, 117695., doi: https://doi.org/10.1016/j.jclepro.2019.117695

Abstract: Along with the continuous and rapid growth of Chinese economy, the problem of resource shortage and environmental deterioration has been increasingly serious, resulting in considerable attention from governments and the public. To tackle the unprecedented environmental challenge, Chinese central government has adopted an increasing number of environmental regulatory instruments, such as the new Environmental Protection Law (EPL) and the environmental inspection led by central government (EICG). As the major energy consumers and environment polluters, heavy-polluting firms are always the key targets of regulations. In response, they have strong incentives to cultivate political connections to obtain laxer regulation enforcement, which may lead to the inefficient implementation of environmental regulatory instruments. The current study aims at understanding the effect of EICG, as the national-level inspection, on the stock value of heavy-polluting firms, and examining whether political connection plays a buffer role in their relationship. Using 270 Chinese listed companies in heavy-polluting industry as samples and event study methodology, the study examined the cumulative abnormal returns (CARs) under different event windows to analyze the impact of EICG on the stock value of heavy-polluting firms, and then conducted a multivariate regression analysis to test the role of political connection. The results of both t statistics and Wilcoxon signed-rank test indicated that the negative CARs during the ten-day event window are significant at the 1% level, implying that EICG has a negative impact on the stock value of heavy-polluting firms. Meanwhile, the politically connected firms suffer less wealth loss during the ten-day event window as compared to the non-politically connected ones, demonstrating that political connection can alleviate the negative effect of EICG on the stock value of heavy-polluting firms. Additionally, further analysis demonstrated that the buffer effect of political connection is stronger for state-owned firms than for nonstate-owned firms. And compared with local political connection, central political connection is more likely to mitigate the negative effect of EICG on the stock value. The findings are beneficial to environmental agencies in setting and implementing environmental regulations in more efficient ways, and provide valuable insight for heavy-polluting firms to take efforts to fulfill their environmental responsibilities

• Pham, H. N. A., Ramiah, V., & Moosa, I. (2020). The effects of environmental regulation on the stock market: the French experience. Accounting & Finance, 60(4), 3279-3304, doi: https://doi.org/10.1111/acfi.12469

Abstract: The impact of environmental regulation on the French stock market is investigated by using event study methodology and asset pricing models. The impact of environmental regulation on the stock prices of environmentally friendly businesses and polluters is assessed. Additionally, we estimate the change in systematic risk following the introduction of new regulations. According to the results, the French stock market is particularly sensitive to the environmental regulation embodied in the European Union Emissions Trading System and less so to the regulation on water, soil and air. The chemicals, oil and gas industries exhibit negative reactions, whereas other polluters (such as construction and materials, and industrial transportation) produce positive abnormal returns.

• Sam, A. G., & Zhang, X. (2019). Firm Size, Political Connections, and the Value Relevance of Environmental Enforcement in China. Political Connections, and the Value Relevance of Environmental Enforcement in China (April 20, 2019), link: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3375205

Abstract: Curbing environmental pollution is a key priority in China as reflected in the adoption of policies such as “New Normal” and the takeover of environmental enforcement by the top leadership of the central government in 2015. In this paper, we use a dataset of publicly-traded firms in the Shanghai and Shenzhen stock exchanges and the event study methodology to gauge the reaction of the investor class to the new environmental enforcement regime. Our results indicate that, together, the announcement and implementation of the new enforcement regime spurred a significant decline of over $29 billion in shareholder value of polluting companies, suggesting that capital market participants expect increased regulatory costs for targeted companies. We also find that neither political connections nor firm size mitigated the severity of the market losses. Instead, larger firms and state-owned enterprises with excess capacity experienced bigger declines in market value.

S02 market

• Johnston, D. M., Sefcik, S. E., & Soderstrom, N. S. (2008). The value relevance of greenhouse gas emissions allowances: An exploratory study in the related United States SO2 market. European Accounting Review, 17(4), 747-764, doi: https://doi.org/10.1080/09638180802481615

This paper examines the valuation implications of greenhouse gas (GHG) emissions allowances. We posit that the value of a firm’s bank of emission allowances has two components that are likely to be positively valued by the capital market: (1) an asset value component; and (2) a real option value component. Since the necessary data to examine this research hypothesis in the setting of GHG emission allowances is not yet available, we test our conjecture by examining the value relevance of sulfur dioxide (SO2) emission allowances held by US electric utilities. Empirical results reveal that the capital market assigns a positive price to a firm’s bank of SO2 emission allowances, consistent with the argument that emission allowances have, at least, an asset value component that is assigned a positive price by the market. We also find weak evidence consistent with the market assigning a real option value to the allowance banks.

GHG

• Bushnell, J. B., Chong, H., & Mansur, E. T. (2013). Profiting from regulation: Evidence from the European carbon market. American Economic Journal: Economic Policy, 5(4), 78-106, link: http://www.aeaweb.org/articles?id=10.1257/pol.5.4.78

We investigate how cap-and-trade regulation affects profits. In late April 2006, the EU C O 2 allowance price dropped 50 percent, equating to a € 28 billion reduction in the value of aggregate annual allowances. We examine daily returns for 552 stocks from the EUROSTOXX index. Despite reductions in environmental costs, we find that stock prices fell for firms in both carbon- and electricity-intensive industries, particularly for firms selling primarily within the EU. Our results imply that investors focus on product price impacts, rather than just compliance costs and the nominal value of pollution permits.

• Chapple, L., Clarkson, P. M., & Gold, D. L. (2013). The cost of carbon: Capital market effects of the proposed emission trading scheme (ETS). Abacus, 49(1), 1-33, doi: https://doi.org/10.1111/abac.12006

Abstract: n.a.

• Jong, T., Couwenberg, O., & Woerdman, E. (2014). Does EU emissions trading bite? An event study. Energy Policy, 69, 510-519, doi: https://doi.org/10.1016/j.enpol.2014.03.007

Abstract: The aim of this paper is to examine whether shareholders consider the EU Emissions Trading Scheme (EUETS) as value-relevant for the participating firms. Ananalysis is conducted of the share prices changes as caused by the first publication of compliance data in April, 2006, which disclosed an over-allocation of emission allowances. Through an event study, it is shown that share prices actually increased as a result of the allowance price drop when firms have a lower carbon-intensity of production and larger allowance holdings. There was no significant value impact from firms’ allowance trade activity or from the pass-through of carbon-related production costs (carbon leakage). The conclusion is that the EU ETS does ‘bite’. The main impact on the share prices of firms arises from their carbon-intensity of production. The EU ETS is thus valued as a restriction on pollution.

• Kong, D., Liu, S., & Dai, Y. (2014). Environmental policy, company environment protection, and stock market performance: Evidence from China. Corporate Social Responsibility and Environmental Management, 21(2), 100-112, doi: https://doi.org/10.1002/csr.1306

Abstract: This paper studies the impact of environmental protection efforts on the market values of firms using the carbon emission rights trading scheme (CERTS) in China as an exogenous shock. We find that (1) the environmental policy of CERTS increases the market values of firms in the environment industry, (2) the efforts of firms on environmental protection further enhance their market values, and (3) the market values of firms located in the regions with CERTS are further improved. Our findings suggest that firms in the environment industry could improve their market values and obtain benefits by strengthening their environmental protection activities. We offer an important policy implication that the government should enact appropriate policies to improve the activities of firms on environmental protection and the sustainable development of the economy.

• Luo, L., & Tang, Q. (2014). Carbon tax, corporate carbon profile and financial return. Pacific Accounting Review, doi: https://doi.org/10.1108/PAR-09-2012-0046

Abstract: Purpose – This paper aims to investigate the impact of the proposed carbon tax on the financial market return of Australian firms. It also considers the differential tax effect on individual firms with different carbon profiles, including factors such as emissions costs, carbon disclosure and climate-change policies. Design/methodology/approach – Utilising the event-study method, the authors examine the market reaction to seven key carbon legislative information events that occurred from February 2011 to November 2011. The sample includes 48 different firms whose emissions-related data are available from Carbon Disclosure Project reports; thus, 336 firm-event observations are used for the cross-sectional analysis. Findings – The paper documents evidence that the proposed tax has an overall negative impact on shareholder wealth as measured by abnormal returns. The negative impact varies across sectors, with the most significant effect found in the materials, industrial and financial sectors. It was also found that a firm’s direct carbon exposure (as measured by Scope 1 emissions) is significantly associated with abnormal returns, whereas the indirect exposure (as measured by Scope 2 emissions) is not, because Scope 2 emissions are not covered by the tax. In addition, the findings suggest that the information content of the events is more notable during the early stages of the development of the carbon tax. Research limitations/implications – The sample is restricted to the largest firms with relevant carbon profile information. Thus, caution should be exercised when generalising the inferences. Practical implications – The introduction of the carbon tax was largely unexpected and most firms were unprepared for it; thus, their carbon policy appears inadequate and does not impress investors. An understanding of how the carbon tax affects shareholder value and welfare will encourage management to take proactive actions to mitigate the compliance costs of carbon legislation. Originality/value – The enactment of the Australian carbon tax perhaps represents one of the biggest social and economic restructuring events in the country’s history. Our results offer initial insight into its impact and suggest that investors would penalise firms with heavy direct operational emissions. In addition, Australian corporate carbon policy seems inadequate, so does not reverse the negative effect of the tax on the value of a firm.

• Brouwers, R., Schoubben, F., Van Hulle, C., & Van Uytbergen, S. (2016). The initial impact of EU ETS verification events on stock prices. Energy Policy, 94, 138-149, doi: https://doi.org/10.1016/j.enpol.2016.04.006

Abstract: This paper studies the impact of verified emissions publications in the European Emissions Trading Scheme (EUETS)on the market value of participating companies. Using event study methodology on a unique sample of 368 listed companies, we show that verified emissions only resulted instatistically significant market responses when the carbon price was high and allowances carcity was anticipated. The cross-section analysis of abnormal returns surrounding the publication of verified emissions shows that shareprices decrease when actual emissions relative to allocated emissions increase. This negative relationship between allocation shortfalls and firm value is only significant for firms that are either carbon-intensive, compared to sector peers, or are less likely to pass through carbon-related costs in their product prices. The results suggest that although the EU ETS has been deemed unsuccessful so far due to over-allocation and low carbon price, shareholders initially perceived allowance holdings as value relevant. Our results highlight that a significant carbon market price and addressing pass-through costing are essential for successful future reforms of the EU ETS and other analogous carbon cap-and-trade system simplemented or planned world wide.

Climate

• Jiang, Y., & Luo, L. (2018). Market reactions to environmental policies: Evidence from China. Corporate Social Responsibility and Environmental Management, 25(5), 889-903, doi: https://doi.org/10.1002/csr.1505

Abstract: The purpose of this study is to investigate Chinese market reaction to environmental‐policy‐related announcements from the Chinese government in response to the Copenhagen Climate Summit from 2009 to 2011. Based on a market model with a newly developed bootstrapping significance testing methodology, we find that market reactions to these policy‐related announcements are significantly positive. Further, we test whether specific industry or firm characteristics can explain cross‐sectional variation in these market reactions. Our results show that market reactions are more significantly positive for high‐pollution industries than low‐pollution industries. The study contributes to the understanding of how investors respond to announcements related to the Copenhagen Climate Summit in the context of China. In contrast to prior studies that examine directly whether a firm’s abnormal return or cumulative abnormal return is negatively affected by environmental regulations, we conduct this study in a distinct way in that our results show that an expectation of delayed carbon legislation will affect a firm’s abnormal return positively, which indicates that the market is likely to respond negatively to an immediate implementation of carbon legislations.

• Schuetze, F., Aleksovski, D., & Mozetic, I. (2020). Stock market reactions to international climate negotiations. Available at SSRN 3718277, link: https://simpolproject.eu/download/dolfins_research/schutze2018stock.pdf

Abstract: This paper investigates the impact of global climate-policy related events on shareholder value by analyzing short-term market reactions to the outcomes of international climate negotiations. We examine the stock market reaction to two categories of events using the event study methodology: The first category includes different international climate policy events. We compare the stock price effects on the largest low-carbon companies with the largest high-carbon (oil, gas, coal) companies globally. We find that international climate negotiations can have a signaling effect on global financial markets. Climate negotiations that facilitated the transition to a low-carbon economy show either positive wealth effects for “green” companies and insignificant effects on ”brown” companies (Cancun and Doha) or negative wealth effects for “brown” companies and insignificant effects on ”green” companies (Paris). Additionally, we find (statistically significant) differences between companies from emerging vs. developed markets. However, although the Paris climate agreement was considered a milestone in climate policy, its effect on stock markets did not reflect that to the same extend. The second category includes the announcement of the Clean200 ranking (a list of the largest “green” companies globally). We find that the wealth effects are greater for higher ranked companies of the Clean200 ranking, however only for companies from developed countries. The findings show that environmental performance, indicated by a ranking, has an influence on short-term financial performance as well.

• Pham, H., Nguyen, V., Ramiah, V., Saleem, K., & Moosa, N. (2019). The effects of the Paris climate agreement on stock markets: evidence from the German stock market. Applied Economics, 51(57), 6068-6075, doi: https://doi.org/10.1080/00036846.2019.1645284

Abstract: The impact of environmental regulation on the French stock market is investigated by using event study methodology and asset pricing models. The impact of environmental regulation on the stock prices of environmentally friendly businesses and polluters is assessed. Additionally, we estimate the change in systematic risk following the introduction of new regulations. According to the results, the French stock market is particularly sensitive to the environmental regulation embodied in the European Union Emissions Trading System and less so to the regulation on water, soil and air. The chemicals, oil and gas industries exhibit negative reactions, whereas other polluters (such as construction and materials, and industrial transportation) produce positive abnormal returns.

• Guo, M., Kuai, Y., & Liu, X. (2020). Stock market response to environmental policies: Evidence from heavily polluting firms in China. Economic Modelling, 86, 306-316, doi: https://doi.org/10.1016/j.econmod.2019.09.028

Abstract: Pollution problems have recently become prominent in China, which has not only amplified public concerns on environmental protection but has also pushed the Chinese government to enforce more stringent environmental regulation. In this paper, we investigate the stock market response to the release of new environmental policies in China from the perspective of investor attention. By using the event study methodology, we assess the impact of 10 environmental policies issued by the central government over the period of 2014-2017. We find consistent evidence that the announcement of new environmental policies hurts the stock returns of heavily polluting firms in the short term. Meanwhile, compared to environmental regulations, environmental laws result in more adverse market reactions due to stricter policy enforcement. More importantly, investor attention to the environment issues, as measured by the Baidu Index, plays an essential role in predicting the stock market response, as we find a higher Baidu Index leads to lower stock returns for heavily polluting firms. Heterogeneity analyses further reveal the negative impact of environmental policies on market value is contingent on firm characteristics such as size, ownership structure, profitability and industry.

• Laplante, B., & Lanoie, P. (1994). The market response to environmental incidents in Canada: a theoretical and empirical analysis. Southern Economic Journal, 657-672., link: https://www.jstor.org/stable/1060574

Abstract: n.a.

• Klassen, R. D., & McLaughlin, C. P. (1996). The impact of environmental management on firm performance. Management science, 42(8), 1199-1214, doi: https://doi.org/10.1287/mnsc.42.8.1199

Environmental management has the potential to play a pivotal role in the financial performance of the firm. Many individuals suggest that profitability is hurt by the higher production costs of environmental management initiatives, while others cite anecdotal evidence of increased profitability. A theoretical model is proposed that links strong environmental management to improved perceived future financial performance, as measured by stock market performance. The linkage to firm performance is tested empirically using financial event methodology and archival data of firm-level environmental and financial performance. Significant positive returns were measured for strong environmental management as indicated by environmental performance awards, and significant negative returns were measured for weak environmental management as indicated by environmental crises. The implicit financial market valuation of these events also was estimated. Cross-sectional analysis of the environmental award events revealed differences for first-time awards and between industries. First-time award announcements were associated with greater increases in market valuation, although smaller increases were observed for firms in environmentally dirty industries, possibly indicative of market skepticism. This linkage between environmental management and financial performance can be used by both researchers and practitioners as one measure of the benefits experienced by industry leaders, and as one criterion against which to measure investment alternatives.

• Jones, K., & Rubin, P. H. (2001). Effects of harmful environmental events on reputations of firms. In Advances in financial economics. Emerald Group Publishing Limited, doi: https://doi.org/10.1016/S1569-3732(01)06007-8

Many previous event studies have found unexpectedly large losses to firms involved in negative incidents. Many of these studies’ authors explain such losses as “goodwill losses” or “reputation effects.” To test this hypothesis, we search for residual losses (in excess of direct costs) to firms involved in events that produce ill will, but do not affect the quality of the firms’ final products nor break implicit labor or supply contracts. Our sample of events is 73 negative environmental events reported in the Wall Street Journal between 1970 and 1992 in which electric power companies or oil firms with listed stocks were involved. We find an overall insignificant capital market response. We interpret this as showing that firms are punished only for actions that actually harm customers or suppliers. Although others have found similar outcomes, our results enhance previous research by extending the findings to a broader range of environmental incidents over a longer time period. Further, our findings suggest that the large residual losses in other event studies may be due to reputation mechanisms (and not measurement errors or event study idiosyncrasies), when defined traditionally — only those who are (potentially) harmed incur the costs of punishment.

• Grand, M. C., & DElia, V. V. (2005). Environmental news and stock markets performance: Further Evidence for Argentina. Universidad del CEMA, link: https://www.econstor.eu/handle/10419/84191

Abstract: More and more firms tend nowadays to adopt environment-friendly attitudes. Their motivation originates in local environmental regulations or requirements of foreign markets to which firms export (both induced by consumers and investors ́ valuation of pro-environment initiatives). There is a well-established literature capturing the impact on stockprices of environmental information releases using the event study methodology. Studies are usually based on information environmental regulation (i.e., the regulator announcement of emissions or compliance status with respect to standards) or on simple media coverage of environmental news. Dasgupta, Laplante and Mamingi (2001) is one of the few references to show that public information on environmental behavior has impact on stock prices in the developing world. It includes Argentina in its analysis together with Chile, Mexico and the Philippines. In this manuscript, we focus specifically on Argentina. We find that positive environmental news have no impact, while negative news do have an effect on average rates of return a few days following its appearance. But, when focusing on different types of positive news, we find that ISO certification has no effect whatsoever, while investment decisions do have some positive significant influence on returns. On the other side, negative news influence on stock returns is particularly significant for events linked to citizen complaints and government rulings (confirming other studies results) and for media coverage of oil company issues. However, we find abnormal returns of a much smaller magnitude than other studiesfor developing countries. We believe that is readonable because there seem to be no reason why the level of abnormal returns (not its volatility) should be larger for environmental news in developing countries than in developed ones.

• Lundgren, T., & Olsson, R. (2009). How bad is bad news? Assessing the effects of environmental incidents on firm value. American Journal of Finance and Accounting, 1(4), 376-392, link: https://ideas.repec.org/p/hhb/sicgwp/2008_001.html

Abstract: Based on a formal model of how investments in corporate social responsibility act upon firm value through goodwill, we derive the hypothesis that under uncertainty, bad news are detrimental to good-will, and subsequently have a negative impact on value. We examine by event study methodology whether bad news in the form of environmental (EV) incidents a¤ect .rm value negatively as measured by abnormal returns using a global data set. An EV incident is a company incident allegedly in violation of international norms on environmen-tal issues. We analyze 142 EV incidents 2003-2006. The incidents are generally associated with negative cumulative abnormal returns, but which are not statistically signi.cant, except for incidents for .rms in the EURO zone. The results are robust with respect to a number of variations in test methodology.

• Cellier & Chollet (2010) The Impact of Corporate Social Responsibility on Stock Prices: An Event Study of Vigeo Rating Announcement, Working Paper doi: n.a.

Abstract: Using an event study methodology, we analyze the impact of Vigeo corporate social rating announcements from 2004 to 2009 on short term stock returns. The results show a positive significant influence of the announcement on the stock returns over two days prior to the announcement and two days following. Using a panel methodology, we analyze the relation between the content of the announcement and the abnormal return. The results show that only a limited number of features play a significant role. Moreover, some features have a positive influence on stock returns whereas others have a negative one. This study sheds some light on the complex relationships between Corporate Social Responsibility rating and Financial Performance.

• Lundgren, T., & Olsson, R. (2010). Environmental incidents and firm value–international evidence using a multi-factor event study framework. Applied Financial Economics, 20(16), 1293-1307, doi: https://doi.org/10.1080/09603107.2010.482516

Abstract: Event study methodology is used to analyse whether bad news in the form of Environmental (EV) incidents affect firm value negatively. An international sample of firms with EV incidents is studied. It is found that EV incidents are generally associated with the loss of value. For European firms, the loss is statistically significant and the magnitude of the abnormal returns should be of economic significance to corporations and investors. The results are not sensitive to multiple variations in methodology, including the use of international versions of the market model as well as of multi-factor models of the Fama–French type. Results are also robust to different parametric and nonparametric test statistics.

• Xu, X. D., Zeng, S. X., & Tam, C. M. (2012). Stock market’s reaction to disclosure of environmental violations: evidence from China. Journal of Business Ethics, 107(2), 227-237, doi: https://doi.org/10.1007/s10551-011-1035-2

Abstract: The stock market’s reaction to information disclosure of environmental violation events (EVEs) is investigated multi-dimensionally for Chinese listed companies, including variables such as pollution types, information disclosure sources, information disclosure levels, modernization levels of the region where the company locates, ultimate ownership of the company, and ownership held by the largest shareholder. Using the method of event study, daily abnormal return (AR) and accumulative abnormal return (CAR) are calculated under different event window for examining the extent to which the stock market responds to the EVEs. Furthermore, statistical significance of the difference in stock market reaction is compared between event firms with different characteristics. The relationship between CAR and its impact factors is examined by multivariate analysis. The findings reveal that the average reduction in market value is estimated to be much lower than the estimated changes in market value for similar events in other countries, demonstrating that the negative environmental events of Chinese listed companies currently have weak impact on the stock market.

• Flammer, C. (2013). Corporate social responsibility and shareholder reaction: The environmental awareness of investors. Academy of Management Journal, 56(3), 758-781, doi: https://doi.org/10.5465/amj.2011.0744

Abstract: This study examines whether shareholders are sensitive to corporations’ environmental footprint. Specifically, I conduct an event study around the announcement of corporate news related to environment for all US publicly traded companies from 1980 to 2009. In keeping with the view that environmental corporate social responsibility (CSR) generates new and competitive resources for firms, I find that companies reported to behave responsibly toward the environment experience a significant stock price increase, whereas firms that behave irresponsibly face a significant decrease. Extending this view of “environment-as-a-resource,” I posit that the value of environmental CSR depends on external and internal moderators. First, I argue that external pressure to behave responsibly towards the environment―which has increased dramatically over recent decades―exacerbates the punishment for eco-harmful behavior and reduces the reward for eco-friendly initiatives. This argument is supported by the data: over time, the negative stock market reaction to eco-harmful behavior has increased, while the positive reaction to eco-friendly initiatives has decreased. Second, I argue that environmental CSR is a resource with decreasing marginal returns and insurance-like features. In keeping with this view, I find that the positive (negative) stock market reaction to eco-friendly (-harmful) events is smaller for companies with higher levels of environmental CSR.

• Hsu, A. W. H., & Wang, T. (2013). Does the market value corporate response to climate change?. Omega, 41(2), 195-206, doi: https://doi.org/10.1016/j.omega.2011.07.009

Abstract: Motivated by the controversial debate on mandatory reductions of greenhouse gases in the U.S., this study explores whether the market values corporate response to tackle carbon dioxide emissions. We measure corporate responses using the measure of media tone based on the positive and negative words in each news article. Our results show that the market reacts favorably to the negative media exposure of corporate response to climate change over the announcement period and the one-year period, which implies that the socially responsible action to tackle climate change is costly. We further find that the positive response is less pronounced for firms from polluting industries and firms with poor environmental performance.

• Deák, Z., & Karali, B. (2014). Stock market reactions to environmental news in the food industry. Journal of Agricultural and Applied Economics, 46(1379-2016-113876), 209-225, doi: https://doi.org/10.1017/S1074070800000742

Abstract: Few studies to date have addressed the relationship between the food industry’s environmental and financial performances although the industry is one of the biggest contributors of greenhouse gas emissions. We analyze the impact of environmental news about selected food companies on their stock prices. Results show that positive (negative) events that are the result of direct internal company actions lead to higher (lower) predicted returns, whereas events related to third-party opinions lead to smaller changes in predicted returns in short event windows. This study highlights the importance of conducting the analysis on a disaggregated basis by incorporating firm-level variables.

• Krüger, P. (2015). Corporate goodness and shareholder wealth. Journal of financial economics, 115(2), 304-329, doi: https://doi.org/10.1016/j.jfineco.2014.09.008

Abstract: Using a unique data set, I study how stock markets react to positive and negative events concerned with a firm׳s corporate social responsibility (CSR). I show that investors respond strongly negatively to negative events and weakly negatively to positive events. I then show that investors do value “offsetting CSR,” that is positive CSR news concerning firms with a history of poor stakeholder relations. In contrast, investors respond negatively to positive CSR news which is more likely to result from agency problems. Finally, I provide evidence that CSR news with stronger legal and economic information content generates a more pronounced investor reaction.

• Xu, X. D., Zeng, S. X., Zou, H. L., & Shi, J. J. (2016). The impact of corporate environmental violation on shareholders’ wealth: A perspective taken from media coverage. Business Strategy and the Environment, 25(2), 73-91, doi: https://doi.org/10.1002/bse.1858

Abstract: The stock market’s reaction to information disclosure of environmental violation events (EVEs) is investigated multi-dimensionally for Chinese listed companies, including variables such as pollution types, information disclosure sources, information disclosure levels, modernization levels of the region where the company locates, ultimate ownership of the company, and ownership held by the largest shareholder. Using the method of event study, daily abnormal return (AR) and accumulative abnormal return (CAR) are calculated under different event window for examining the extent to which the stock market responds to the EVEs. Furthermore, statistical significance of the difference in stock market reaction is compared between event firms with different characteristics. The relationship between CAR and its impact factors is examined by multivariate analysis. The findings reveal that the average reduction in market value is estimated to be much lower than the estimated changes in market value for similar events in other countries, demonstrating that the negative environmental events of Chinese listed companies currently have weak impact on the stock market.

• Li, B., & Wu, K. (2017). The price of environmental sustainability: Empirical evidence from stock market performance in China. Sustainability, 9(8), 1452, doi: https://doi.org/10.3390/su9081452

Abstract: Chinese manufacturers, which produce nearly one-fourth of global manufacturing outputs, play important roles in the global supply chains formany products. The Chinese government proposed the “Made in China 2025” plan to help manufacturers upgrade their technology, so that the country will become a green and innovative “world manufacturing power”. It is important for researchers, practitioners, and the government to know the benefits and costs of being environmentally sustainable. In this paper, we investigate the effects of environmentally sustainable announcements of Chinese firms in the manufacturing, and the wholesale and retail industry on their stock market performance. First, we find negative market responses, which are significant in scale and statistics. Second, the stock market reactions are different for firms in different industries. Third, the stock market reactions are different in different years. Finally, we control the firm size and the book-to-market ratio with the Fama–French three factor model. The result is highly consistent with the one from the simple market model.

• Lo, K. Y., & Kwan, C. L. (2017). The effect of environmental, social, governance and sustainability initiatives on stock value–Examining market response to initiatives undertaken by listed companies. Corporate Social Responsibility and Environmental Management, 24(6), 606-619, doi: https://doi.org/10.1002/csr.1431

Abstract: This paper examines the impact of environmental, social, governance (ESG) and sustainability initiatives on stock value of listed companies in Hong Kong. Event methodology is used to examine whether the market responses significantly to the implementation of these initiatives. Our result shows that the market reacts more positively to ESG initiatives than sustainability initiatives. This brings several implications to corporates’ strategy as well as development of socially responsible investments (SRI). To facilitate the development of SRI, companies should communicate the value and returns of these initiatives clearly with investors; financial institutions should also equip investors with knowledge to understand non-financial information. Enhancing the transparency of sustainability index will also give investors more credible information to relate firms’ CSR performance with firm value.

• Sarumpaet, S., & Hendrawaty, E. (2017). Market reactions to corporate unethical behaviors: A study from Indonesia, link: http://repository.lppm.unila.ac.id/14532/6/17%20Susi%20FourA%20Bali%202017%20paper.pdf

Abstract: This research examines market reactions to socially irresponsible corporate behaviours. An event study was conducted to detect the presence of abnormal returns during the releases of media news regarding the social irresponsible practices of Indonesian listed companies in environmental, social and financial aspects. The examples of unfavorable environmental practices are illegal lodging, forest fires, and pollutions, while in social aspects it includes labor strikes and lay-offs, market monopoly, and similar practices. Socially irresponsible practices in financial aspect includes frauds and tax evasions. Prior studies from more developed nations have been widely documented in the literature. However, the use of media reports of three different aspects to measure the event is new to the study. The results of prior studies, which mostly come from developed markets, have also been inconclusive. The use of a sample from a developing market is expected to provide distinct contribution to the existing literature. The results show that Indonesian stock market responded to media news regarding corporate unethical behaviors, particularly in social aspect, as indicated by negative abnormal returns in the third day after the news releases by prominent online newspapers, Kompas. When such information is split into each category, namely: environmental, social, financial information, the result is only consistent for social issues. Negative abnormal returns occurred on the third day after the media reports of unethical social behaviors of the sample firms. However, we did not find significant market responses to media reports of unfavorable financial and environmental practices by the sample companies. Using paired sample t-tests to examine the market response before and after the event, this study only finds significant difference in cumulative abnormal returns for unfavorable social practices. In general this study offers an empirical evidence that media reports on CSR issues have information content, especially for firms reported as having problems in maintaining social responsibility.

• Dorfleitner, G., Utz, S., & Wimmer, M. (2018). Patience pays off–corporate social responsibility and long-term stock returns. Journal of sustainable finance & investment, 8(2), 132-157, doi: https://doi.org/10.1080/20430795.2017.1403272

Abstract: This paper presents new evidence on the implications of corporate social responsibility (CSR) on stock returns. By implementing a longterm focus as well as using subdivided measures for CSR, we cater to the intangible nature and the heterogeneity of CSR activities. We use a novel classification of these activities into nine areas, each belonging to one of the standard environment, social, and governance (ESG) dimensions. Using cross-sectional return regressions and buy-and-hold abnormal returns, we find that firms with strong CSR significantly outperform firms with weak CSR in the mid and long run in certain areas. Firm returns increase up to 3.8% with respect to a one-standard-deviation increase of the CSR rating. In a two-stage least squares (2SLS) approach we verify that the main economic channel for the appreciation of strong CSR stocks is unexpected additional cash flows. The results are relevant for assessing the efficiency of CSR, and have broader implications for asset managers who can expect abnormal returns by investing in firms that exhibit a high CSR in the respective scores and holding the stocks for a longer period.

• Capelle-Blancard, G., & Petit, A. (2019). Every little helps? ESG news and stock market reaction. Journal of Business Ethics, 157(2), 543-565, doi: https://doi.org/10.1007/s10551-017-3667-3

Abstract: Stories about corporate social responsibility have become very frequent over the past decade, and managers can no longer ignore their impact on firm value. In this paper, we investigate the extent and the determinants of the stock market’s reaction following ordinary news related to environmental, social and governance issues—the so-called ESG factors. To that purpose, we use an original database provided by Covalence EthicalQuote. Our empirical analysis is based on about 33,000 ESG news (positive or negative), targeting one hundred listed companies over the period 2002–2010. On average, firms facing negative events experience a drop in their market value of 0.1%, whereas companies gain nothing on average from positive announcements. We find also that market participants are responsive to the media, but they do not react to firms’ press releases or to NGOs’ disclosures. Moreover, our results indicate that sector’s reputation mitigates the loss (the goodwill hypothesis) and that cultural proximity and lexical contents of ESG disclosures play a significant role in the magnitude of the impact

• Wang, C., Zhang, H., Lu, L., Wang, X., & Song, Z. (2019). Pollution and corporate valuation: Evidence from China. Applied Economics, 51(32), 3516-3530, doi: https://doi.org/10.1080/00036846.2019.1581915

Abstract: Environmental pollution brings severe challenges in the context of a high growing economy of China. Pollution events bring serious ecological cost to the environment, direct costs from sanction, and reputational damage to the listed firms. We study the market reaction to 145 pollution events in China during Jan 2008 and Feb 2015. We find that the 2-day cumulative abnormal returns (CARs) of pollution events are significantly negative, which shows the disciplining effect of the stock market on the listed firms. In addition, pollution events with sanctions have lower CARs than otherwise, which are heterogeneous among different sanction types such as shutting down, fines and rectification. Finally, water pollution has lower CARs than other pollution types. We find that direct economic loss is an important reason for the negative market reactions to pollution events.

Environmental Report

• Yusoff, R., Abd Rahman, S. A., & Wan Mohamed, W. N. (2006). The economic consequences of voluntary environmental reporting on shareholder wealth. Social and Management Research Journal, 3(2), 1-23, link: http://ir.uitm.edu.my/id/eprint/13008/

Abstract: This study was carried out to examine the economic consequences of voluntary environmental reporting on shareholders’ wealth among Malaysian Listed Companies that voluntarily disclosed environmental information in their financial report. One hundred andfifty two (152) companies ofBursa Malaysia (MSE) had been identified as a sample in the current study. Seventy six (76) companies were classified as environmental reporting companies while the remaining companies were classified as non-environmental reporting companies. The classification was done in order to determine the differences between share price, profitability and market equity for both types of companies. The study hypothesizes that voluntary environmental reporting leads to an improvement in the shareholders wealth. However, the results show that there is no significant difference between cumulative abnormal return for environmental and non-environmental reporting companies. Based on the results obtained, it can also be concluded that profitability and size of the companies do not have any significant roles in deciding whether or not to produce environmental reporting companies.

• Nossa, V., Cezar, J. F., da Silva Júnior, A., Baptista, É. C. S., & Nossa, S. N. (2009). The relationship between abnormal returns and social and environmental responsibility: An empirical study of companies traded on the bovespa from 1999 to 2006. Brazilian Business Review, 6(2), 117-131, doi: http://dx.doi.org/10.15728/bbr.2009.6.2.1

Abstract: This article investigates the relationship between abnormal returns and the social and environmental performance of companies listed for trading on the São Paulo Stock Exchange (Bovespa) that regularly publish a social balance sheet according to the model proposed by the Brazilian Institute of Social and Economic Analysis (IBASE). We measured the social and environmental performance based on internal and external social and environmental responsibility indicators taken from the social balance sheets of companies that publish such a report, drawn from among the 100 largest companies by market value, between 1999 and 2006. To calculate abnormal returns we used the share price and beta, available in the Economática and Ipeadata databases. The hypothesis was tested by regression analysis with fixed-effect panel data, adjusted by the robustness tool, applying the Hausman test. The results show that the external social responsibility indicator, the internal social responsibility indicator and the environmental responsibility indicator do not have any relationship with the firms’ abnormal returns.

• Reddy, K., & Gordon, L. (2010). The effect of sustainability reporting on financial performance: An empirical study using listed companies, link: https://researchcommons.waikato.ac.nz/handle/10289/7658

Abstract: Purpose – This study investigates the effect sustainability reporting has on companies’ financial performance. Sustainability reports are voluntarily released by companies that provide additional information to the stakeholders regarding the impact their activities have on the environment and society. Design/Methodology/Approach: This empirical paper analyses and identifies overlaps, gaps, limitations and flaws in current constructs of sustainability reporting. Using event study method to estimate abnormal returns for a 31 day event window for a sample of 68 listed companies, 17 listed in New Zealand Stock Exchange (NZX) and 51 listed in the Australian Stock exchange (ASX). Findings: Results of the empirical study indicate that sustainability reporting is statistically significant in explaining abnormal returns for the Australian companies. The cross-sectional analysis results of the combined dataset for the two countries support the view that the contextual factors of industry type significantly impacts abnormal returns of the reporting companies. In this regard, this study identifies several contextual factors, such as industry and type of sustainability report, that have the potential to impact the relationship. Only the CSR type of sustainability report was significant in explaining the abnormal return of New Zealand companies. Practical implications: To underscore the practical implications of the theory, it shows, by reference to the model, how sustainability reporting influences financial performance for companies engaged in industries that have environmental implications. However, the simplistic model may also have many other applications in management and the social sciences. Originality value: The proposed model is highly original in providing a framework for studying the impact of sustainability reporting in companies that have an environmental impact.

• Wang, Y., Delgado, M. S., Khanna, N., & Bogan, V. L. (2019). Good news for environmental self-regulation? Finding the right link. Journal of Environmental Economics and management, 94, 217-235, doi: https://doi.org/10.1016/j.jeem.2019.01.009

Abstract: We investigate the stock market response to firm disclosure of positive environmental information and the link from that information to environmental outcomes. We classify environmental media releases by informational content and value relevance, and assess the abnormal stock returns of each type of event. While announcements of future environmental activities lead to the largest favorable stock market reactions, there is no guaranteed link from this type of information to environmental outcomes. Further analysis of the abnormal returns shows that the magnitude of the stock market reaction depends on firm financial characteristics across all event types rather than on firm environmental performance. Our results indicate that the ability for voluntary environmental information disclosure to induce environmental self-regulation is limited to the extent that firms are able to follow through with their announcements of planned environmental activities.

Voluntary Environmental Programmes (VEP)

• Fisher-Vanden, K., & Thorburn, K. S. (2011). Voluntary corporate environmental initiatives and shareholder wealth. Journal of Environmental Economics and management, 62(3), 430-445, doi: https://doi.org/10.1016/j.jeem.2011.04.003

Abstract: Researchers debate whether environmental investments reduce firm value or actually improve financial performance. We provide some compelling evidence on shareholder wealth effects of membership in voluntary environmental programs (VEPs). Companies announcing membership in EPA’s Climate Leaders, a program targeting reductions in greenhouse gas emissions, experience significantly negative abnormal stock returns. The price decline is larger in firms with poor corporate governance structures, and for high market-to-book (i.e., high growth) firms. However, firms joining Ceres, a program involving more general environmental commitments, have insignificant announcement returns, as do portfolios of industry rivals. Overall, corporate commitments to reduce greenhouse gas emissions appear to conflict with firm value maximization. This has important implications for policies that rely on voluntary initiatives to address climate change. Further, we find that firms facing climate-related shareholder resolutions or firms with weak corporate governance standards – giving managers the discretion to make such voluntary environmentally responsible investment decisions – are more likely to join Climate Leaders; decisions that may result in lower firm value.

• Keele, D. M., & DeHart, S. (2011). Partners of USEPA climate leaders: An event study on stock performance. Business Strategy and the Environment, 20(8), 485-497, doi: https://doi.org/10.1002/bse.704

Abstract: This research utilized an event study method to assess how the stocks of publicly traded companies responded before and after announcing their partnership with the United States Environmental Protection Agency (USEPA) Climate Leaders program. Although the stocks exhibited an average non‐significant positive abnormal return of 0.56% on the day of the announcement, the cumulative abnormal returns for the stock prices of the firms for two of the three event windows showed statistically significant negative returns. These results suggest that these firms’ public announcements of joining the USEPA Climate Leaders partnership did not have a positive impact on stock performance. While no immediate financial benefit was found in this research, the practices implemented by these firms to reduce their greenhouse gas emissions may still bode well for long‐term corporate earnings and attractiveness to investors.

• Kim, E. H., & Lyon, T. (2011). When does institutional investor activism increase shareholder value?: the carbon disclosure project. The BE Journal of Economic Analysis & Policy, 11(1), doi: https://doi.org/10.2202/1935-1682.2676.

Abstract: This paper presents the first empirical test of the financial impacts of institutional investor activism towards climate change. Specifically, we study the conditions under which share prices are increased for the Financial Times (FT) Global 500 companies due to participation in the Carbon Disclosure Project (CDP), a consortium of institutional investors with $57 trillion in assets. We find no systematic evidence that participation, in and of itself, increased shareholder value. However, by making use of Russia’s ratification of the Kyoto Protocol, which caused the Protocol to go into effect, we find that companies’ CDP participation increased shareholder value when the likelihood of climate change regulation rose. We estimate the total increase in shareholder value from CDP participation at $8.6 billion, about 86% of the size of the carbon market in 2005. Our findings suggest that institutional investor activism towards climate change can increase shareholder value when the external business environment becomes more climate conscious.

• Yu, F. (2012). Participation of firms in voluntary environmental protection programs: an analysis of corporate social responsibility and capital market performance. Contemporary Economic Policy, 30(1), 13-28, doi: https://doi.org/10.1111/j.1465-7287.2010.00248.x

Abstract: The Environmental Protection Agency (EPA) employs voluntary programs as a policy instrument to encourage firms to go beyond mere compliance with laws and regulations in protecting the environment. Based on event study methodology, this paper tests for abnormal stock market returns from membership in the National Environmental Performance Track (NEPT) program. The analysis shows that there is strong evidence that acceptance of a facility to the NEPT adds significantly to the market capitalization of the accepted firms. Corporate social responsibility can be financially rewarding for firms and voluntary programs of the EPA can be an effective complement to performance‐based regulatory instruments.

• Lee, S. Y., Park, Y. S., & Klassen, R. D. (2015). Market responses to firms’ voluntary climate change information disclosure and carbon communication. Corporate Social Responsibility and Environmental Management, 22(1), 1-12, doi: https://doi.org/10.1002/csr.1321

Abstract: Despite the importance of the Carbon Disclosure Project (CDP), the question of how firms’ voluntary carbon disclosure influences capital markets and shareholder value remains unanswered. Using the event study methodology with a sample of firms from the CDP Korea 2008 and 2009, this paper investigates market responses to firms’ voluntary carbon information disclosure. The results suggest that the market is likely to respond negatively to firms’ carbon disclosure, implying that investors tend to perceive carbon disclosure as bad news and thus are concerned about potential costs facing firms for addressing global warming. In addition, the study examines the moderating effect of frequent carbon communication on the relationship between carbon disclosure and shareholder value. The results suggest that a firm can mitigate negative market shocks from its carbon disclosure by releasing its carbon news periodically through the media in advance of its carbon disclosure.

• Dam, L., & Petkova, B. N. (2014). The impact of environmental supply chain sustainability programs on shareholder wealth. International Journal of Operations & Production Management, doi: https://doi.org/10.1108/IJOPM-10-2012-0482

Abstract: Purpose – Multinationals are increasingly pressured by stakeholders to commit to environmental sustainability that exceeds their own firm borders. As a result, multinationals have started to commit to environmental supply chain sustainability programs (ESCSPs). However, little is known about whether such commitment is rewarded or punished by financial markets, and if the stock price reaction differs depending on the type of firm that commits to such a program. This paper aims to discuss these issues. Design/methodology/approach – The authors conduct an event study followed by two-equation Heckman modeling, using a sample of 66 multinationals that committed to the ESCSP of the Carbon Disclosure Project (CDP). Findings – It was found that generally there is a marginally significant negative stock price reaction to announcement of participation in this ESCSP (i.e. -0.8 percent, po0.10). However, the authors argue and show that firms in industries that have historically faced more pressure from consumers are less likely to announce their participation. If one corrects for this industry bias, then the negative stock price reaction is even more pronounced (i.e. -3.2 percent, po0.05). Research limitations/implications – Using objective data, the study provides insights into the shareholder wealth effects of firms that commit to the ESCSP of the CDP. As such, the sample does not cover firms that set up their own ESCSPs. Practical implications – The paper is valuable for practitioners and investors who are interested in finding out if participation in ESCSPs is financially attractive, and for (governmental) policy makers who may want to be assured that there is sufficient incentive for firms to pursue environmental supplychain sustainability. Originality/value – This is the first paper that captures how financial markets react to announcements of ESCSPs.

• Griffin, P. A., Lont, D. H., & Sun, E. Y. (2017). The relevance to investors of greenhouse gas emission disclosures. Contemporary Accounting Research, 34(2), 1265-1297, doi: https://doi.org/10.1111/1911-3846.12298

Abstract: This study finds that investors price firms’ greenhouse gas (GHG) emissions as a negative component of equity value, and this valuation discount does not differ between firms that voluntarily disclose to the Carbon Disclosure Project (CDP) and nondisclosing firms. We derive the GHG emissions for nondisclosers from an estimation model that incorporates firm characteristics and industry. The finding that investors view CDP amounts and estimates of emissions as equally value-relevant suggests that equity values reflect GHG information from channels other than the CDP. An event study of investors’ response to emission-related information in firms’ 8-K filings further supports this finding. Economically, our results suggest that, for the median S&P 500 firm, GHG emissions impose a market-implied equity discount of $79 per ton, representing about one-half of 1 percent of market capitalization.

Green Investment

• Hall, P. L., & Rieck, R. (1998). The effect of positive corporate social actions on shareholder wealth. Journal of Financial and strategic decisions, 11(2), 83-89, link: https://pdfs.semanticscholar.org/d8a5/5ba60ba6c23f4c1fba62b8ec75610f212dfd.pdf

Abstract: This study examines the impact of voluntary positive corporate social actions on shareholder wealth. After performing an event analysis, the announcement of corporate donations is found to have a significant positive effect on stock prices. Firms producing environmentally-friendly products exhibit a large significant positive reaction on Day 0, however no significant returns accrue over the cumulative time period from -5 to +5. No other announcement of a voluntary corporate social action is found to have a significant impact on shareholder wealth, specifically those firms engaged in recycling or social policy issues.

• Gilley, K. M., Worrell, D. L., Davidson III, W. N., & El–Jelly, A. (2000). Corporate environmental initiatives and anticipated firm performance: the differential effects of process-driven versus product-driven greening initiatives. Journal of management, 26(6), 1199-1216, doi: https://doi.org/10.1177/014920630002600607

Abstract: We investigate the influence of environmental initiatives on firms’ anticipated economic performance using an event study methodology. Framing our arguments within an organizational reputation framework, we propose that, due to potential positive effects of these initiatives on firm performance (through increases in reputation), shareholders will react positively to announced environmental initiatives. Contrary to our hypothesis, we found no overall effect of announced environmental initiatives on stock returns. However, our findings indicate that reactions to product-driven initiatives are significantly different than reactions to process-driven ones.

• Mathur, L. K., & Mathur, I. (2000). An analysis of the wealth effects of green marketing strategies. Journal of Business Research, 50(2), 193-200., doi: https://doi.org/10.1016/S0148-2963(99)00032-6

Abstract: Event study methodology is used to examine the wealth effects, or stock price reactions, to corporate announcements of green marketing activities. Two procedures for measuring stock price reactions and two different tests of significance are used in the study. The results for the sample of 73 firms show that the market value for the average firm in the sample declines by 3.14% during the period from 10 days prior to 10 days after the news is announced. Announcements related to green products, recycling efforts, and appointments of environmental policy managers result in insignificant stock price reactions. However, announcements for green promotional efforts produce significantly negative stock price reactions. Sampling by financial and operational characteristics shows that firms with higher growth in earnings, larger firms, and firms with higher advertising-to-sales ratios experience relatively less negative stock price reactions. Managerial implications of the results and directions for future research are also presented.

• Halme, M., & Niskanen, J. (2001). Does corporate environmental protection increase or decrease shareholder value? The case of environmental investments. Business Strategy and the Environment, 10(4), 200-214, doi: https://doi.org/10.1002/bse.290

Abstract: This study examines share price effects of environmental investments using data from the Finnish forest industry from 1970 to 1996. The results indicate that the instantaneous market reaction is negative, and that the larger the investment, the larger the fall in prices. However, contrary to the view that corporate actions have a permanent effect on firm value, we observe rapid price recovery after the instantaneous negative reaction. This may support a hypothesis that environmental investments create goodwill for the investing firms and are thus not negative net present value investments. Unexpectedly, we find that the instantaneous negative market reaction was stronger in the most recent sample years. Explanations for this finding relate to the slowness of institutional change within the financial community as well as to the growing share of international investors seeking short‐term holding gains. In conclusion, it appears that not only finance theory but also notions from institutional theory and corporate environmental management literature are needed to explain stock price behaviour in conjunction with environmental investments.

• Nagayama, S., & Takeda, F. (2006, March). An empirical study on the impact of environmentally friendly news on stock prices in Japan. In Asia-Pacific Economic Association: 2006 Annual Meeting., link: http://www.accessecon.com/pubs/EB/2006/Volume13/EB-06M20001A.pdf

Abstract: This paper investigates how stock prices respond to the release of the environmental management ranking by using a standard event study methodology. Examining top 30 manufacturing companies in the environmental management ranking published by Nihon Keizai Shimbun (Nikkei newspaper) from 1998 to 2005, we find that stock prices on the whole did not respond significantly to the release of the ranking within a three-day event window. Moreover, stock prices of companies that experienced a downgrade increased significantly, while those that experienced an upgrade decreased significantly.

• Callado-Muñoz, F. J., & Utrero-González, N. Do investors react to environmental friendly news? An analysis for spanish capital market. Corporate Ownership and Control, 315., link: http://www.virtusinterpress.org/IMG/pdf/COC__Volume_5_Issue_2_Winter_2008_Continued2_.pdf#page=75

Abstract: This work adds to the recent debate in corporate social responsibility (CSR) and its effects on performance and firm value. By analysing Spanish companies participating in the IBEX-35 stock-exchange index, this paper empirically tests whether there is a significant price reaction to environmental friendly announcements. Using event studies methodology, the distinction among sectors allows for a better understanding of investors reaction. Results show first, that investors do act in response to this kind of practices and second, that the sign of their reaction depends crucially on the business of the firm and the sector where it operates. In this sense, results may help in reconciling the opposite views regarding the effects of CSR policies.

• Bose, I., & Pal, R. (2012). Do green supply chain management initiatives impact stock prices of firms?. Decision support systems, 52(3), 624-634, doi: https://doi.org/10.1016/j.dss.2011.10.020

Abstract: Although firms have been taking green supply chain management (GSCM) initiatives, it is not known whether they create value for firms. We analyze 104 announcements related to GSCM using an event study, and determine what causes statistically significant gain in stock prices for these firms. Manufacturing firms, firms with high R&D expenses, and early adopters show a strong increase in stock prices on the day of the announcement. At the same time, small firms, firms not well-known for taking green initiatives, as well as firms that are low in growth potential considerably surprise the market when they make such announcements.

• Ba, S., Lisic, L. L., Liu, Q., & Stallaert, J. (2013). Stock market reaction to green vehicle innovation. Production and Operations Management, 22(4), 976-990, doi: https://doi.org/10.1111/j.1937-5956.2012.01387.x

Abstract: We study the stock market reaction to announcements of global green vehicle innovation over a 14‐year time span (1996–2009) using the event study methodology. We document that the stock market generally reacts positively to automakers’ announcements of environmental innovations, consistent with prior research on the wealth effects of innovation announcements. Our results indicate that crucial green product development decisions such as innovation type and market segment choices exert direct influence on a firm’s market value. These results hold after controlling for firm size, leverage, profitability, R&D intensity, and oil price changes.

• Wassmer, U., Cueto, D. C., & Switzer, L. N. (2014). The effect of corporate environmental initiatives on firm value: Evidence from fortune 500 firms. M@ n@ gement, 17(1), 1-19, doi: https://doi.org/10.3917/mana.171.0001

Abstract: When do firms derive value from investing in environmental initiatives (CEIs)? We examine stock market responses to the announcements of 183 CEIs by 71 Fortune 500 firms during the period 2002 to 2008. We find that the stock market reacts positively to such announcements but does not react differently to CEIs concerning a firm’s inputs, throughputs, and outputs. We also find that there is an inverted U-shaped relationship between the timing of a CEI and the abnormal stock market return following its announcement. Overall, this study shows that timing is a relevant explanatory factor for the value firms derive from investing in environmental action.

• Lam, H. K., Yeung, A. C., Cheng, T. C. E., & Humphreys, P. K. (2016). Corporate environmental initiatives in the Chinese context: Performance implications and contextual factors. International Journal of Production Economics, 180, 48-56, doi: https://doi.org/10.1016/j.ijpe.2016.06.020

Abstract: Although a number of studies have been conducted on the relationship between environmental management and firm performance ,most of them are conducted in the Western context. Due to the unique social and economic environments in China, the performance implications of environmental management might be quite different in the Chinese context. We examine the impact of corporate environmental initiatives (CEIs) on the market value of firms in China. We find that, in contrast to the findings in the Western context, Chinese investors react negatively to CEI announcements. The negative reaction is more significant when the announcements are related to processes rather than products, and for state-owned enterprises rather than privately-owned corporations. However, there is no difference whether the CEI is self-declared or third-party endorsed. Overall, our research indicates that Chinese investors consider CEIs to be in conflict with shareholder interest. Inparticular, CEIs in state-owned enterprises might be considered by investors as signals that firms need to sacrifice profits to shoulder more social responsibility.

• Sadovnikova, A., & Pujari, A. (2017). The effect of green partnerships on firm value. Journal of the Academy of Marketing Science, 45(2), 251-267, doi: https://doi.org/10.1007/s11747-016-0490-9

Abstract: Many businesses increasingly use strategic partnerships to manage corporate environmental agendas. However, how value is created in green partnerships remains largely unexplored. To address this gap, the authors examine the effects of announcements of green partnerships (marketing versus technology) on shareholder value. It is argued that in green partnerships firms leverage marketing and technology-related capabilities for value-enhancing purposes. The results show that announcements of green marketing partnerships have an immediate positive and significant effect on shareholder value, whereas announcements of green technology partnerships produce an immediate negative and significant effect. Nevertheless, green technology partnerships can accrue positive returns, but over a longer-term(1 year) period. In dirtier industries, it is more difficult to generate positive returns to green partnerships. Counterintuitively, though, in highpolluting industries, firms having a history of positive environmental performance experience lower financial gains from announcements of green partnerships than firms that were less environmentally responsible in the past.

• Byrd, J., & Cooperman, E. S. (2018). Investors and stranded asset risk: Evidence from shareholder responses to carbon capture and sequestration (CCS) events. Journal of Sustainable Finance & Investment, 8(2), 185-202, doi: https://doi.org/10.1080/20430795.2017.1418063

Abstract: To avoid catastrophic climate change risk, the case for fossil fuel reserves not being burned has become stronger. This is particularly the case for coal, as the highest emitter of CO2 per unit of energy, with large portions of coal reserves likely to become stranded assets, posing significant risk to investors. Technology in the past has come to the rescue, so investor valuations may depend on perceptions for the success of technology in reducing stranded asset risk. We examine whether coal company shareholders perceive coal as a technologically stranded asset by studying shareholder reactions to news about CCS (carbon capture and sequestration) technology breakthroughs and setbacks. We find significant positive reactions to CCS breakthroughs, but no reaction for setbacks. This suggests investors have embedded expectations of stranded asset risk into their valuations, but also recognize the significance of successful CCS technology development and deployment for the economic prospects of the coal industry.

• Robinson, J., Glean, A., & Moore, W. (2018). How does news impact on the stock prices of green firms in emerging markets?. Research in International Business and Finance, 45, 446-453, doi: https://doi.org/10.1016/j.ribaf.2017.07.176

Abstract: Firms around the globe have enhanced their green credentials as a means of increasing competitiveness and improving firm performance. The literature on firms and news suggests that stock prices of most firms tends to be very responsive to news items in the short-term. However, many green companies make investments or are working in industries where the payoffs are likely to be obtained more in the medium-term. There is therefore good reason to believe that the stock prices of these firms would be less responsive to daily news items. Using a database of green firms in emerging markets, the study finds that news can impact on daily returns of green companies. However, the effects of this news does not seem to be long-lasting and was not observed across the majority of firms considered.