Do Stock Markets Penalise Environment-Unfriendly Behaviour? Evidence from India

Shreekant Gupta
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Shreekant Gupta: Delhi School of Economics

No 116, Working papers from Centre for Development Economics, Delhi School of Economics

Abstract: A growing body of research points to the fact that capital markets react to environmental news and thus create incentives for pollution control in both developed and emerging market economies. In this paper we conduct an event study to examine the impact of environmental rating of large pulp and paper, auto and chlor alkali firms on their stock prices. We find that the market generally penalizes environmentally un-friendly behaviour in that announcement of weak environmental performance by firms leads to negative abnormal returns of up to 43 percent. A positive correlation is found between abnormal returns to a firm's stock and the level of its environmental performance. These findings should be viewed as further evidence of the important role that capital markets could play in environmental management, particularly in developing countries where environmental monitoring and enforcement are weak.

Keywords: green rating; capital market; environmental management; event study (search for similar items in EconPapers)
JEL-codes: G14 L73 Q25 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2003-03
New Economics Papers: this item is included in nep-cfn and nep-fin
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Citations: View citations in EconPapers (6)

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