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Unexpected Media Coverage and Stock Market Outcomes : Evidence from Chemical Disasters


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  • Laguna, Marie-Aude
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    Using the event-study methodology and multivariate regressions, this paper examines the intensity of media coverage, its determinants and its marginal effect on stock returns following chemical disasters. To do this, we build an original dataset of chemical explosions that occurred worldwide from 1990-2005. First, our results show that news coverage increases with the social and environmental consequences of the accident. Second, to deal with the fact that news coverage is determined simultaneously with stock returns, we suggest two valid and original instrumental variables: a measure of the firm’s newsworthiness and a measure of daily news pressure at the time of the disaster. We find that unexpected news coverage due to chemical disasters also respond to these conjunctural factors, and is truly exogenous to abnormal returns. Third, we show that, all else being equal (pollution, number of casualties, and firm profile), the stock market reaction to intense press coverage is delayed, and becomes negative in the long-term. At the same time, there is clear evidence that in the first days news coverage mitigates the market value losses. We interpret these results as evidence that investors are slow to recognize the extent of the loss associated with the public implications of news coverage (e.g., image and public trust deterioration). In addition, in contrast toprevious studies, we argue that press coverage is not necessarily associated with increased investor attention.

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    Bibliographic Info

    Paper provided by Paris Dauphine University in its series Economics Papers from University Paris Dauphine with number 123456789/5891.

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    Date of creation: Oct 2010
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    Handle: RePEc:dau:papers:123456789/5891

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    Keywords: Corporate Social Responsibility; Pollution; Media; Efficient Market Hypothesis; Behavioral Finance;

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    1. Lily Fang & Joel Peress, 2009. "Media Coverage and the Cross-section of Stock Returns," Journal of Finance, American Finance Association, American Finance Association, vol. 64(5), pages 2023-2052, October.
    2. Nagpurnanand R. Prabhala, 1997. "Conditional Methods in Event-Studies and an Equilibrium Justification for Standard Event-Study Procedures," Yale School of Management Working Papers, Yale School of Management ysm55, Yale School of Management.
    3. Capelle-Blancard, Gunther & Laguna, Marie-Aude, 2010. "How does the stock market respond to chemical disasters?," Journal of Environmental Economics and Management, Elsevier, vol. 59(2), pages 192-205, March.
    4. Thomas Eisensee & David Strömberg, 2007. "News Droughts, News Floods, and U.S. Disaster Relief," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 122(2), pages 693-728, 05.
    5. Chan, Wesley S., 2003. "Stock price reaction to news and no-news: drift and reversal after headlines," Journal of Financial Economics, Elsevier, Elsevier, vol. 70(2), pages 223-260, November.
    6. A. Craig MacKinlay, 1997. "Event Studies in Economics and Finance," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 13-39, March.
    7. Matthew Kahn, 2007. "Environmental disasters as risk regulation catalysts? The role of Bhopal, Chernobyl, Exxon Valdez, Love Canal, and Three Mile Island in shaping U.S. environmental law," Journal of Risk and Uncertainty, Springer, Springer, vol. 35(1), pages 17-43, August.
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