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Capital markets responses to environmental performance in developing countries


  • Dasgupta, Susmita
  • Laplante, Benoit
  • Mamingi, Nlandu


Firms in developing countries are often said to have no incentives to invest in pollution control because they typically face weak monitoring and enforcement of environmental regulations. But the inability of formal institutions to control pollution through fines and penalties may not be as serious an impediment to pollution control as is generally argued, contend the authors. Capital markets may react negatively to news of adverse environmental incidents (such as spills or violations of permits) as well as positively to the announcement that a firm is using cleaner technologies. The authors assess whether capital markets in Argentina, Chile, Mexico, and the Philippines react to the announcement of firm-specific environmental news. They show that: I) Capital markets react positively ( the firms'market value increases) to the announcement of rewards and explicit recognition of superior environmental performance. ii) They react negatively (the firms'value decreases) to citizens'complaints. Environmental regulators in developing countries could 1) harness market forces by introducing structured programs to release firm-specific information about environmental performance, and 2) empower communities and stakeholders through environmental education programs.

Suggested Citation

  • Dasgupta, Susmita & Laplante, Benoit & Mamingi, Nlandu, 1998. "Capital markets responses to environmental performance in developing countries," Policy Research Working Paper Series 1909, The World Bank.
  • Handle: RePEc:wbk:wbrwps:1909

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    References listed on IDEAS

    1. Afsah, Shakeb & Laplante, Benoit & Wheeler, David, 1996. "Controlling industrial pollution : a new paradigm," Policy Research Working Paper Series 1672, The World Bank.
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    7. Lanoie, Paul & Laplante, Benoit & Roy, Maite, 1997. "Can capital markets create incentives for pollution control?," Policy Research Working Paper Series 1753, The World Bank.
    8. A. Craig MacKinlay, 1997. "Event Studies in Economics and Finance," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 13-39, March.
    9. Paul Lanoie & Benoit Laplante & Maité Roy, 1997. "Can Capital Markets Create Incentives for Pollution Control?," CIRANO Working Papers 97s-05, CIRANO.
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    Cited by:

    1. Facundo Albornoz & Matthew A. Cole & Robert J. R. Elliott & Marco G. Ercolani, 2009. "In Search of Environmental Spillovers," The World Economy, Wiley Blackwell, vol. 32(1), pages 136-163, January.
    2. Patrick Richard, 2010. "Financial market instability and CO2 emissions," Cahiers de recherche 10-20, Departement d'Economique de l'École de gestion à l'Université de Sherbrooke.
    3. Khanna, Madhu, 2001. " Non-mandatory Approaches to Environmental Protection," Journal of Economic Surveys, Wiley Blackwell, vol. 15(3), pages 291-324, July.
    4. Shahbaz, Muhammad, 2010. "Does financial instability increase environmental pollution in Pakistan?," MPRA Paper 31360, University Library of Munich, Germany, revised 28 Mar 2011.
    5. Karan Bhanot & Valeria Martinez & Zi Ning & Yiuman Tse, "undated". "Competition for Order Flow and Market Quality in the Gold and Silver Futures Markets," Working Papers 0036, College of Business, University of Texas at San Antonio.
    6. Susmita Dasgupta & Benoit Laplante & Hua Wang & David Wheeler, 2002. "Confronting the Environmental Kuznets Curve," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 147-168, Winter.
    7. Mingue SUn, "undated". "A Branch-and-Bound Algorithm for Representative Integer Efficient Solutions in Multiple Objective Network Programming Problems," Working Papers 0007, College of Business, University of Texas at San Antonio.
    8. Marzio Galeotti, 2003. "Economic Development and Environmental Protection," Working Papers 2003.89, Fondazione Eni Enrico Mattei.
    9. Foulon, Jerome & Lanoie, Paul & Laplante, Benoit, 2000. "Incentives for pollution control - regulation and public disclosure," Policy Research Working Paper Series 2291, The World Bank.
    10. Yan Cheung & Weiqiang Tan & Hee-Joon Ahn & Zheng Zhang, 2010. "Does Corporate Social Responsibility Matter in Asian Emerging Markets?," Journal of Business Ethics, Springer, vol. 92(3), pages 401-413, March.


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