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Do Stock Markets Penalise Environment-Unfriendly Behaviour? Evidence from India

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  • Shreekant Gupta

    (Delhi School of Economics)

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    Abstract

    A growing body of research points to the fact that capital markets react to environmental news and thus create incentives for pollution control in both developed and emerging market economies. In this paper we conduct an event study to examine the impact of environmental rating of large pulp and paper, auto and chlor alkali firms on their stock prices. We find that the market generally penalizes environmentally un-friendly behaviour in that announcement of weak environmental performance by firms leads to negative abnormal returns of up to 43 percent. A positive correlation is found between abnormal returns to a firm's stock and the level of its environmental performance. These findings should be viewed as further evidence of the important role that capital markets could play in environmental management, particularly in developing countries where environmental monitoring and enforcement are weak.

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    Bibliographic Info

    Paper provided by Centre for Development Economics, Delhi School of Economics in its series Working papers with number 116.

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    Length: 28 pages
    Date of creation: Mar 2003
    Date of revision:
    Handle: RePEc:cde:cdewps:116

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    Related research

    Keywords: green rating; capital market; environmental management; event study;

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    1. Boardman, Anthony & Vertinsky, Ilan & Whistler, Diana, 1997. "Using information diffusion models to estimate the impacts of regulatory events on publicly traded firms," Journal of Public Economics, Elsevier, vol. 63(2), pages 283-300, January.
    2. Afsah, Shakeb & Laplante, Benoit & Wheeler, David, 1996. "Controlling industrial pollution : a new paradigm," Policy Research Working Paper Series 1672, The World Bank.
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    Cited by:
    1. Sunderasan Srinivasan & Raj Singh, 2010. "The persistence of green goodwill," Environment, Development and Sustainability, Springer, vol. 12(5), pages 825-837, October.

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