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Public information as a deterrent to environmental infractions

Author

Listed:
  • Duane Graddy
  • Thomas Strickland

Abstract

Past studies of the impact of publicly announced violations of environmental laws on the market value of the offending firms have yielded equivocal results. A particularly troubling aspect of this research is whether the market imposes a reputation penalty for such violations. This article uses the event-study methodology to estimate the effect of announced environmental infractions on the market returns of the violators. Stockholders experienced significant negative abnormal returns in the event window. Cross-sectional analysis showed these cumulative losses to be a function of firm size, type of legal action and specific toxin. The reputation component of abnormal returns was influenced by these factors as well.

Suggested Citation

  • Duane Graddy & Thomas Strickland, 2007. "Public information as a deterrent to environmental infractions," Applied Economics, Taylor & Francis Journals, vol. 39(15), pages 1961-1972.
    • Handle: RePEc:taf:applec:v:39:y:2007:i:15:p:1961-1972
    DOI: 10.1080/00036840600707084
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    References listed on IDEAS

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    1. Lanoie, Paul & Laplante, Benoit & Roy, Maite, 1997. "Can capital markets create incentives for pollution control?," Policy Research Working Paper Series 1753, The World Bank.
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    Cited by:

    1. Franco Mariuzzo & Peter Ormosi & Zherou Majied, 2019. "Public and reputational sanctions: The case of cartels," Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) 2018-06v3, Centre for Competition Policy, University of East Anglia, Norwich, UK..
    2. Pozo, Veronica F. & Schroeder, Ted C., 2016. "Evaluating the costs of meat and poultry recalls to food firms using stock returns," Food Policy, Elsevier, vol. 59(C), pages 66-77.
    3. Mariuzzo, Franco & Ormosi, Peter L & Majied, Zherou, 2020. "Fines and reputational sanctions: The case of cartels," International Journal of Industrial Organization, Elsevier, vol. 69(C).
    4. S. Zeng & X. Xu & H. Yin & C. Tam, 2012. "Factors that Drive Chinese Listed Companies in Voluntary Disclosure of Environmental Information," Journal of Business Ethics, Springer, vol. 109(3), pages 309-321, September.

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