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Stock Market Response to Firms’ Misconduct

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  • Elisa Navarra

Abstract

Labor rights violations and environmental challenges have caused companies to comeunder increasing society’s pressure to achieve higher sustainability standards. Using a noveldataset of worldwide industrial disasters and companies allegedly involved in them, I examinewhether large companies suffer systematic stock market losses after disasters. I estimate anaverage drop in price returns of 1.47 percentage points on the day after the disaster and3.21 over one week. Accordingly, volatility soars. I then discuss the possible mechanismsbehind this negative market response. I focus on harm to the reputation for sustainabilityand I examine the media’s attention to environmental and labor topics through a sentimentanalysis of disaster-related news. I find that a more negative tone of the news is associatedwith larger stock market losses.

Suggested Citation

  • Elisa Navarra, 2022. "Stock Market Response to Firms’ Misconduct," Working Papers ECARES 2022-40, ULB -- Universite Libre de Bruxelles.
    • Handle: RePEc:eca:wpaper:2013/352568
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    More about this item

    Keywords

    Industrial Disasters; Reputation; Stock Market Returns;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development
    • 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

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