How Bad is Bad News? Assessing the Effects of Environmental Incidents on Firm Value
AbstractBased on a formal model of how investments in corporate social responsibility act upon .rm value through goodwill, we derive the hypothesis that under uncertainty, bad news are detrimental to good-will, and subsequently have a negative impact on value. We examine by event study methodology whether bad news in the form of environmental (EV) incidents a¤ect .rm value negatively as measured by abnormal returns using a global data set. An EV incident is a company incident allegedly in violation of international norms on environmen-tal issues. We analyze 142 EV incidents 2003-2006. The incidents are generally associated with negative cumulative abnormal returns, but which are not statistically signi.cant, except for incidents for .rms in the EURO zone. The results are robust with respect to a number of variations in test methodology.
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Bibliographic InfoPaper provided by Sustainable Investment Research Platform in its series Sustainable Investment and Corporate Governance Working Papers with number 2008/1.
Length: 22 pages
Date of creation: 30 Jan 2008
Date of revision:
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Postal: Economics of Corporate Sustainability Management, Department of Industrial Economics and Management, Royal Institute of Technology, SE-100 44 Stockholm, SWEDEN
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-05-24 (All new papers)
- NEP-CFN-2008-05-24 (Corporate Finance)
- NEP-ENV-2008-05-24 (Environmental Economics)
- NEP-FMK-2008-05-24 (Financial Markets)
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