Unexpected Media Coverage and Stock Market Outcomes : Evidence from Chemical Disasters
AbstractUsing 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 InfoPaper provided by Paris Dauphine University in its series Economics Papers from University Paris Dauphine with number 123456789/5891.
Date of creation: Oct 2010
Date of revision:
Corporate Social Responsibility; Pollution; Media; Eﬃcient Market Hypothesis; Behavioral Finance;
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
- G30 - Financial Economics - - Corporate Finance and Governance - - - General
- M30 - Business Administration and Business Economics; Marketing; Accounting - - Marketing and Advertising - - - General
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- 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, vol. 35(1), pages 17-43, August.
- A. Craig MacKinlay, 1997. "Event Studies in Economics and Finance," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 13-39, March.
- Nagpurnanand R. Prabhala, 1997. "Conditional Methods in Event-Studies and an Equilibrium Justification for Standard Event-Study Procedures," Yale School of Management Working Papers ysm55, Yale School of Management.
- Thomas Eisensee & David Strömberg, 2007. "News Droughts, News Floods, and U.S. Disaster Relief," The Quarterly Journal of Economics, MIT Press, vol. 122(2), pages 693-728, 05.
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