IDEAS home Printed from https://ideas.repec.org/p/hal/journl/hal-01613922.html
   My bibliography  Save this paper

Do corporate bond and credit default swap markets value environmental, social or corporate governance events?

Author

Listed:
  • Florian Berg

    (LEDa - Laboratoire d'Economie de Dauphine - IRD - Institut de Recherche pour le Développement - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

  • Yannick Le Pen

    (LEDa - Laboratoire d'Economie de Dauphine - IRD - Institut de Recherche pour le Développement - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

Abstract

We measure the impact of negative environmental, social and governance news on corporate bond prices and credit default swap premiums for the Eurozone market. Each firm is affected at least by one piece of news related to its environmental, social and governance practices. Each news is then flagged with an indicator of importance. Ab- normal bond returns are computed by subtracting return from a matching portfolio to the return of the observed bond return. Abnormal credit default swap return is calculated with a regression of the observed bond return on an equiweighted index that is constructed to transpose our bond universe on the credit default swap market. Several parametric and non parametric tests do not show any significant impact of these negative events as a whole on corporate bond prices, even though there is evidence of some impact of two subcategories of social events. When considering all events, we find a slight but counter-intuitive decrease of the credit default swap premium within the 5 following days of the event. REMARK: We did finish the database and have now more than 2000 events associated to 212 firms. Unfortunately, the calculation of the matching portfolios takes more time than we expected due to the various constraints. However, we joined the first results for the credit default swap market (Table 7). It does not change the results we found with our subsample of 85 firms.

Suggested Citation

  • Florian Berg & Yannick Le Pen, 2013. "Do corporate bond and credit default swap markets value environmental, social or corporate governance events?," Post-Print hal-01613922, HAL.
    • Handle: RePEc:hal:journl:hal-01613922
    Note: View the original document on HAL open archive server: https://hal.science/hal-01613922
    as

    Download full text from publisher

    File URL: https://hal.science/hal-01613922/document
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Huafeng (JASON) Chen & Marcin Kacperczyk & Hernán Ortiz-Molina, 2011. "Do Nonfinancial Stakeholders Affect the Pricing of Risky Debt? Evidence from Unionized Workers," Review of Finance, European Finance Association, vol. 16(2), pages 347-383.
    2. Michael C. Jensen, 2010. "Value Maximization, Stakeholder Theory, and the Corporate Objective Function," Journal of Applied Corporate Finance, Morgan Stanley, vol. 22(1), pages 32-42, January.
    3. Geoffrey Heal, 2005. "Corporate Social Responsibility: An Economic and Financial Framework," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 30(3), pages 387-409, July.
    4. Renneboog, Luc & Ter Horst, Jenke & Zhang, Chendi, 2008. "The price of ethics and stakeholder governance: The performance of socially responsible mutual funds," Journal of Corporate Finance, Elsevier, vol. 14(3), pages 302-322, June.
    5. Boehmer, Ekkehart & Masumeci, Jim & Poulsen, Annette B., 1991. "Event-study methodology under conditions of event-induced variance," Journal of Financial Economics, Elsevier, vol. 30(2), pages 253-272, December.
    6. Glosten, Lawrence R & Jagannathan, Ravi & Runkle, David E, 1993. "On the Relation between the Expected Value and the Volatility of the Nominal Excess Return on Stocks," Journal of Finance, American Finance Association, vol. 48(5), pages 1779-1801, December.
    7. Charles J. Corrado, 2011. "Event studies: A methodology review," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 51(1), pages 207-234, March.
    8. Barber, Brad M. & Lyon, John D., 1997. "Detecting long-run abnormal stock returns: The empirical power and specification of test statistics," Journal of Financial Economics, Elsevier, vol. 43(3), pages 341-372, March.
    9. Corrado, Charles J. & Zivney, Terry L., 1992. "The Specification and Power of the Sign Test in Event Study Hypothesis Tests Using Daily Stock Returns," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 27(3), pages 465-478, September.
    10. Klaus-Michael Menz, 2010. "Corporate Social Responsibility: Is it Rewarded by the Corporate Bond Market? A Critical Note," Journal of Business Ethics, Springer, vol. 96(1), pages 117-134, September.
    11. Mark P. Sharfman & Chitru S. Fernando, 2008. "Environmental risk management and the cost of capital," Strategic Management Journal, Wiley Blackwell, vol. 29(6), pages 569-592, June.
    12. James W. Kolari & Seppo Pynnönen, 2010. "Event Study Testing with Cross-sectional Correlation of Abnormal Returns," The Review of Financial Studies, Society for Financial Studies, vol. 23(11), pages 3996-4025, November.
    13. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    14. Aleksandra Kacperczyk, 2009. "With greater power comes greater responsibility? takeover protection and corporate attention to stakeholders," Strategic Management Journal, Wiley Blackwell, vol. 30(3), pages 261-285, March.
    15. Corrado, Charles J., 1989. "A nonparametric test for abnormal security-price performance in event studies," Journal of Financial Economics, Elsevier, vol. 23(2), pages 385-395, August.
    16. Zakoian, Jean-Michel, 1994. "Threshold heteroskedastic models," Journal of Economic Dynamics and Control, Elsevier, vol. 18(5), pages 931-955, September.
    17. Brown, Stephen J. & Warner, Jerold B., 1985. "Using daily stock returns : The case of event studies," Journal of Financial Economics, Elsevier, vol. 14(1), pages 3-31, March.
    18. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-325, June.
    19. Goss, Allen & Roberts, Gordon S., 2011. "The impact of corporate social responsibility on the cost of bank loans," Journal of Banking & Finance, Elsevier, vol. 35(7), pages 1794-1810, July.
    20. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
    21. Kolari, James W. & Pynnonen, Seppo, 2011. "Nonparametric rank tests for event studies," Journal of Empirical Finance, Elsevier, vol. 18(5), pages 953-971.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:dau:papers:123456789/11380 is not listed on IDEAS
    2. Kiesel, Florian & Ries, Jörg M. & Tielmann, Artur, 2017. "Reprint of “The impact of mergers and acquisitions on shareholders' wealth in the logistics service industry”," International Journal of Production Economics, Elsevier, vol. 194(C), pages 261-277.
    3. Kiesel, Florian & Ries, Jörg M. & Tielmann, Artur, 2017. "The impact of mergers and acquisitions on shareholders' wealth in the logistics service industry," International Journal of Production Economics, Elsevier, vol. 193(C), pages 781-797.
    4. Kolari, James W. & Pynnonen, Seppo, 2011. "Nonparametric rank tests for event studies," Journal of Empirical Finance, Elsevier, vol. 18(5), pages 953-971.
    5. Maul, D. & Schiereck, D., 2017. "The bond event study methodology since 1974," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 80723, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    6. Farruggio, Christian & Michalak, Tobias C. & Uhde, Andre, 2013. "The light and dark side of TARP," Journal of Banking & Finance, Elsevier, vol. 37(7), pages 2586-2604.
    7. Krüger, Philipp, 2015. "Corporate goodness and shareholder wealth," Journal of Financial Economics, Elsevier, vol. 115(2), pages 304-329.
    8. Seppo Pynnonen, 2022. "Non-Parametric Statistic for Testing Cumulative Abnormal Stock Returns," JRFM, MDPI, vol. 15(4), pages 1-14, March.
    9. Pandey, Dharen Kumar & Kumari, Vineeta, 2021. "Event study on the reaction of the developed and emerging stock markets to the 2019-nCoV outbreak," International Review of Economics & Finance, Elsevier, vol. 71(C), pages 467-483.
    10. Nicolau, Juan Luis & Sharma, Abhinav, 2022. "A review of research into drivers of firm value through event studies in tourism and hospitality: Launching the Annals of Tourism Research curated collection on drivers of firm value through event stu," Annals of Tourism Research, Elsevier, vol. 95(C).
    11. Thai-Ha Le & Donghyun Park & Cong-Phu-Khanh Tran & Binh Tran-Nam, 2018. "The Impact of the Hai Yang Shi You 981 Event on Vietnam’s Stock Markets," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 17(3_suppl), pages 344-375, December.
    12. Andres, Christian & Betzer, André & Doumet, Markus, 2021. "Measuring changes in credit risk: The case of CDS event studies," Global Finance Journal, Elsevier, vol. 49(C).
    13. Andrieș, Alin Marius & Nistor, Simona & Ongena, Steven & Sprincean, Nicu, 2020. "On Becoming an O-SII (“Other Systemically Important Institution”)," Journal of Banking & Finance, Elsevier, vol. 111(C).
    14. Frendy, & Hu, Dan, 2014. "Japanese stock market reaction to announcements of news affecting auditors’ reputation: The case of the Olympus fraud," Journal of Contemporary Accounting and Economics, Elsevier, vol. 10(3), pages 206-224.
    15. Ding, Li & Lam, Hugo K.S. & Cheng, T.C.E. & Zhou, Honggeng, 2018. "A review of short-term event studies in operations and supply chain management," International Journal of Production Economics, Elsevier, vol. 200(C), pages 329-342.
    16. Alexis Cellier & Pierre Chollet & Jean†François Gajewski, 2016. "Do Investors Trade around Social Rating Announcements?," European Financial Management, European Financial Management Association, vol. 22(3), pages 484-515, June.
    17. Panayiotis C. Andreou & Christodoulos Louca & Christos S. Savva, 2016. "Short-horizon event study estimation with a STAR model and real contaminated events," Review of Quantitative Finance and Accounting, Springer, vol. 47(3), pages 673-697, October.
    18. Wolfgang Breuer & Moritz Felde & Bertram I. Steininger, 2017. "The Financial Impact of Firm Withdrawals from “State Sponsor of Terrorism” Countries," Journal of Business Ethics, Springer, vol. 144(3), pages 533-547, September.
    19. Dutta, Anupam & Knif, Johan & Kolari, James W. & Pynnonen, Seppo, 2018. "A robust and powerful test of abnormal stock returns in long-horizon event studies," Journal of Empirical Finance, Elsevier, vol. 47(C), pages 1-24.
    20. Lanfear, Matthew G. & Lioui, Abraham & Siebert, Mark G., 2019. "Market anomalies and disaster risk: Evidence from extreme weather events," Journal of Financial Markets, Elsevier, vol. 46(C).
    21. Dutordoir, Marie & Strong, Norman C. & Sun, Ping, 2018. "Corporate social responsibility and seasoned equity offerings," Journal of Corporate Finance, Elsevier, vol. 50(C), pages 158-179.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:journl:hal-01613922. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CCSD (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.