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Capital markets responses to environmental performance in developing countries

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Author Info
Dasgupta, Susmita
Laplante, Benoit
Mamingi, Nlandu

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Abstract

Firms in developing countries are often said to have no incentives to invest in pollution control because they typically face weak monitoring and enforcement of environmental regulations. But the inability of formal institutions to control pollution through fines and penalties may not be as serious an impediment to pollution control as is generally argued, contend the authors. Capital markets may react negatively to news of adverse environmental incidents (such as spills or violations of permits) as well as positively to the announcement that a firm is using cleaner technologies. The authors assess whether capital markets in Argentina, Chile, Mexico, and the Philippines react to the announcement of firm-specific environmental news. They show that: I) Capital markets react positively ( the firms'market value increases) to the announcement of rewards and explicit recognition of superior environmental performance. ii) They react negatively (the firms'value decreases) to citizens'complaints. Environmental regulators in developing countries could 1) harness market forces by introducing structured programs to release firm-specific information about environmental performance, and 2) empower communities and stakeholders through environmental education programs.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1909.

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Date of creation: 30 Apr 1998
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Handle: RePEc:wbk:wbrwps:1909

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Related research
Keywords: Microfinance; Water and Industry; Small and Medium Size Enterprises; Environmental Economics&Policies; Small Scale Enterprise; Water and Industry; Agricultural Research; Small Scale Enterprise; Private Participation in Infrastructure; Environmental Economics&Policies;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Konar, Shameek & Cohen, Mark A., 1997. "Information As Regulation: The Effect of Community Right to Know Laws on Toxic Emissions," Journal of Environmental Economics and Management, Elsevier, vol. 32(1), pages 109-124, January. [Downloadable!] (restricted)
  2. Lanoie, Paul & Laplante, Benoit & Roy, Maite, 1997. "Can capital markets create incentives for pollution control?," Policy Research Working Paper Series 1753, The World Bank. [Downloadable!]
  3. Afsah, Shakeb & Laplante, Benoit & Wheeler, David, 1996. "Controlling industrial pollution : a new paradigm," Policy Research Working Paper Series 1672, The World Bank. [Downloadable!]
  4. A. Craig MacKinlay, 1997. "Event Studies in Economics and Finance," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 13-39, March. [Downloadable!] (restricted)
  5. Paul Lanoie & Benoit Laplante & Maité Roy, 1997. "Can Capital Markets Create Incentives for Pollution Control?," CIRANO Working Papers 97s-05, CIRANO. [Downloadable!]
  6. Wheeler, David & Mody, Ashoka, 1992. "International investment location decisions : The case of U.S. firms," Journal of International Economics, Elsevier, vol. 33(1-2), pages 57-76, August. [Downloadable!] (restricted)
  7. Tobey, James A, 1990. "The Effects of Domestic Environmental Policies on Patterns of World Trade: An Empirical Test," Kyklos, Blackwell Publishing, vol. 43(2), pages 191-209.
  8. Adam B. Jaffe et al., 1995. "Environmental Regulation and the Competitiveness of U.S. Manufacturing: What Does the Evidence Tell Us?," Journal of Economic Literature, American Economic Association, vol. 33(1), pages 132-163, March. [Downloadable!] (restricted)
  9. Levinson, Arik, 1996. "Environmental regulations and manufacturers' location choices: Evidence from the Census of Manufactures," Journal of Public Economics, Elsevier, vol. 62(1-2), pages 5-29, October. [Downloadable!] (restricted)
  10. Yuquing Xing & Charles Kolstad, 2002. "Do Lax Environmental Regulations Attract Foreign Investment?," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 21(1), pages 1-22, January. [Downloadable!] (restricted)
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  11. Hettige, Hemamala & Lucas, Robert E B & Wheeler, David, 1992. "The Toxic Intensity of Industrial Production: Global Patterns, Trends, and Trade Policy," American Economic Review, American Economic Association, vol. 82(2), pages 478-81, May. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Karan Bhanot & Valeria Martinez & Zi Ning & Yiuman Tse, . "Competition for Order Flow and Market Quality in the Gold and Silver Futures Markets," Working Papers 0036, College of Business, University of Texas at San Antonio. [Downloadable!]
  2. Myung Ko & Kweku-Muata Osei-Bryson & Carlos Dorantes, . "Investigating the impact of publicly announced information security breaches on organizational performance," Working Papers 0007, College of Business, University of Texas at San Antonio. [Downloadable!]
  3. María Teresa Ruiz-Tagle, 2006. "How Do Capital Markets Respond to Environmental News?," Environmental Economy and Policy Research Working Papers 22.2006, University of Cambridge, Department of Land Economics, revised 2006. [Downloadable!]
  4. Marzio Galeotti, 2003. "Economic Development and Environmental Protection," Working Papers 2003.89, Fondazione Eni Enrico Mattei. [Downloadable!]
  5. María Teresa Ruiz-Tagle, 2006. "What are the Determinants of Environmental Compliance in the Chilean manufacturing Industry? A case study," Environmental Economy and Policy Research Working Papers 17.2006, University of Cambridge, Department of Land Economics, revised 2006. [Downloadable!]
  6. Foulon, Jerome & Lanoie, Paul & Laplante, Benoit, 2000. "Incentives for pollution control - regulation and public disclosure," Policy Research Working Paper Series 2291, The World Bank. [Downloadable!]
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