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News Media as a Channel of Environmental Information Disclosure: Evidence from an EGARCH Approach

Author

Listed:
  • Ran Zhang

    () (Department of Economics, Rensselaer Polytechnic Institute, Troy, NY 12180-3590, USA)

  • Kenneth Simons

    () (Department of Economics, Rensselaer Polytechnic Institute, Troy, NY 12180-3590, USA)

  • David I. Stern

    () (Division of Economics, Crawford School of Economics and Government, Australian National University, Canberra ACT 0200, Australia)

Abstract

This paper incorporates EGARCH modeling in a financial event study relating firm value to negative environmental news. News media provide informal information channels unlike formal government disclosure programs. This paper improves on previous studies by using a larger sample than most studies, treating heteroskedasticity in the disturbance term with a hybrid method that allows EGARCH, and comparing stock market reactions across industries and event types. Both standard and hybrid methods reveal reductions in firms’ stock market valuations by on average 1.2% in response to negative environmental events. Significant negative market reactions to environmental news arise for all industry groups and event types analyzed. Accidents and complaints yield 2.0% mean reductions in stock market value, versus later lawsuits and court decisions with 1.5% and 0.8% reductions respectively. Firms in traditional polluting industries are most affected. These stock market impacts suggest that informal environmental information channels may financially incentivize firms’ self-regulation.

Suggested Citation

  • Ran Zhang & Kenneth Simons & David I. Stern, 2010. "News Media as a Channel of Environmental Information Disclosure: Evidence from an EGARCH Approach," Rensselaer Working Papers in Economics 1001, Rensselaer Polytechnic Institute, Department of Economics.
  • Handle: RePEc:rpi:rpiwpe:1001
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    File URL: http://www.economics.rpi.edu/workingpapers/rpi1001.pdf
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    References listed on IDEAS

    as
    1. John J. Heim, 2008. "The Consumption Function," Rensselaer Working Papers in Economics 0805, Rensselaer Polytechnic Institute, Department of Economics.
    2. John J. Heim, 2009. "A MethodFor Separating Iincome & Substitution Effects Of Exchange Rate Changes On Aggregate Demand," Rensselaer Working Papers in Economics 0901, Rensselaer Polytechnic Institute, Department of Economics.
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    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Zhang et al. Now on RePEc
      by David Stern in Stochastic Trend on 2010-01-07 15:20:00
    2. News Media as a Channel of Environmental Information Disclosure: Evidence from an EGARCH Approach
      by David Stern in Stochastic Trend on 2009-12-23 10:00:00

    More about this item

    JEL classification:

    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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