Do Equity Markets Spur Corporate Detox?

This paper provides archival and experimental evidence that equity market feedback influences firms' environmental behavior. Following the publication of U.S. Reports on Carcinogens, firms using newly identified carcinogens that experience particularly negative stock-price reactions reduce toxic waste more, especially when their worker exposure is high. Cross-sectional tests show stronger effects where market signals are likely to be more informative, and peer-firm evidence suggests that firms also learn from affected firms' stock-price reactions. We complement the archival evidence with an information provision experiment using participants with managerial experience in TRI-reporting industries. Participants assigned randomly to a negative stock-market signal are more likely to state that they would undertake costly toxic-release reductions and abatement. Overall, while existing research emphasizes divestment and engagement, this paper highlights an additional mechanism through which financial markets shape corporate responsibility: prices convey information that managers use to adjust environmental practices.