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Isolating the corporate reputational risk in environmental oil spill disasters

Author

Listed:
  • Jose Manuel Feria-Dominguez

    (Department of Finance and Accounting, Universidad Pablo de Olavide)

  • Enrique Jimenez-Rodriguez

    (Department of Finance and Accounting, Universidad Pablo de Olavide)

  • Ines Merino Fernandez-Galiano

    (Department of Finance and Accounting, Universidad Pablo de Olavide)

Abstract

This paper isolate the corporate reputational risk incurred by Oil and Gas companies, listed in the NYSE, derived from recent medium sized and large oil spill disasters occurred from 2005 to 2011 in the US. For this purpose, we conduct a standard short-horizon daily event study analysis to calibrate the potential impact of such environmental episodes on the market value of the firms analyzed. Since the accidental spillages are proved to have a negative effect on the cumulative abnormal returns (henceforth, CAR) of the firm’s stock, reputational risk can be identified by adjusting abnormal returns by a certain Loss Ratio, in order to capture the difference between the plummeted firm’s market value and the operational loss incurred by the company. The new magnitude, CAR (Rep), is then introduced to disentangle operational losses from reputational damage.

Suggested Citation

  • Jose Manuel Feria-Dominguez & Enrique Jimenez-Rodriguez & Ines Merino Fernandez-Galiano, 2013. "Isolating the corporate reputational risk in environmental oil spill disasters," Working Papers 13.02, Universidad Pablo de Olavide, Department of Financial Economics and Accounting (former Department of Business Administration).
    • Handle: RePEc:pab:fiecac:13.02
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    References listed on IDEAS

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    Keywords

    Corporate Reputational Risk; abnormal returns; sevent study; oil spills;
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