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Environmental Performance And Capital Markets--Evidence From India

Author

Listed:
  • Shreekant Gupta

    (Department of Economics, Delhi School of Economics)

  • Bishwanath Goldar

    (Institute of Economic Growth)

  • Shubham Dang

    (SCOPT Analytics)

Abstract

This paper examines whether capital markets in developing countries respond to news about environmental performance of firms thereby creating incentive for pollution control. In particular we conduct an event study of firms in three polluting industries in India (paper and pulp, cement and iron and steel) that were rated under the Green Rating Project. Along lines of earlier research we find the stock market generally penalizes weak environmental performance among firms. Interestingly, paper and pulp firms that were being rated for a second time and did strictly worse relative to their previous performance experienced significant negative returns. In terms of methodology, the paper controls for event day clustering by using the KP-statistic instead of the commonly used Z or BMP-statistic. We show when KP statistic is used, the negative impact of poor environmental performance on the stock returns is not as pronounced as the standard Z or BMP statistic would lead one to believe.

Suggested Citation

  • Shreekant Gupta & Bishwanath Goldar & Shubham Dang, 2019. "Environmental Performance And Capital Markets--Evidence From India," Working papers 303, Centre for Development Economics, Delhi School of Economics.
    • Handle: RePEc:cde:cdewps:303
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    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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