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Isolating the corporate reputational risk in environmental oil spill disasters

  • 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)

Registered author(s):

    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.

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    File URL: http://www.upo.es/serv/bib/fiecac/fiecac1302.pdf
    File Function: First version, 2013
    Download Restriction: no

    Paper provided by Universidad Pablo de Olavide, Department of Financial Economics and Accounting (former Department of Business Administration) in its series Working Papers with number 13.02.

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    Length: 27 pages
    Date of creation: Jul 2013
    Date of revision:
    Handle: RePEc:pab:fiecac:13.02
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    1. David L. Deephouse & Suzanne M. Carter, 2005. "An Examination of Differences Between Organizational Legitimacy and Organizational Reputation," Journal of Management Studies, Wiley Blackwell, vol. 42(2), pages 329-360, 03.
    2. Gillet, Roland & Hübner, Georges & Plunus, Séverine, 2010. "Operational risk and reputation in the financial industry," Journal of Banking & Finance, Elsevier, vol. 34(1), pages 224-235, January.
    3. Alexander Dyck & Adair Morse & Luigi Zingales, 2007. "Who Blows the Whistle on Corporate Fraud?," NBER Working Papers 12882, National Bureau of Economic Research, Inc.
    4. Robert D. Klassen & Curtis P. McLaughlin, 1996. "The Impact of Environmental Management on Firm Performance," Management Science, INFORMS, vol. 42(8), pages 1199-1214, August.
    5. Capelle-Blancard, Gunther & Laguna, Marie-Aude, 2010. "How does the stock market respond to chemical disasters?," Economics Papers from University Paris Dauphine 123456789/3187, Paris Dauphine University.
    6. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
    7. Cannas, Giuseppina & Masala, Giovanni & Micocci, Marco, 2009. "Quantifying reputational effects for publicly traded financial institutions," Journal of Financial Transformation, Capco Institute, vol. 27, pages 76-81.
    8. Fiordelisi, Franco & Soana, Maria-Gaia & Schwizer, Paola, 2013. "The determinants of reputational risk in the banking sector," Journal of Banking & Finance, Elsevier, vol. 37(5), pages 1359-1371.
    9. Robert Ferstl & Sebastian Utz & Maximilian Wimmer, 2012. "The Effect of the Japan 2011 Disaster on Nuclear and Alternative Energy Stocks Worldwide: An Event Study," BuR - Business Research, German Academic Association for Business Research, vol. 5(1), pages 25-41, May.
    10. Brown, Stephen J. & Warner, Jerold B., 1985. "Using daily stock returns : The case of event studies," Journal of Financial Economics, Elsevier, vol. 14(1), pages 3-31, March.
    11. Cummins, J. David & Lewis, Christopher M. & Wei, Ran, 2006. "The market value impact of operational loss events for US banks and insurers," Journal of Banking & Finance, Elsevier, vol. 30(10), pages 2605-2634, October.
    12. Dodd, Peter & Warner, Jerold B., 1983. "On corporate governance : A study of proxy contests," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 401-438, April.
    13. William F. Sharpe, 1963. "A Simplified Model for Portfolio Analysis," Management Science, INFORMS, vol. 9(2), pages 277-293, January.
    14. A. Craig MacKinlay, 1997. "Event Studies in Economics and Finance," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 13-39, March.
    15. repec:hal:journl:halshs-00637961 is not listed on IDEAS
    16. Marie-Aude Laguna & Gunther Capelle-Blancard, 2010. "How Does the Stock Market Respond to Chemical Disasters?," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00637961, HAL.
    17. Fama, Eugene F, et al, 1969. "The Adjustment of Stock Prices to New Information," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 10(1), pages 1-21, February.
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