How Bad is Bad News? Assessing the Effects of Environmental Incidents on Firm Value

Tommy Lundgren () and Rickard Olsson ()
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Rickard Olsson: Umeå School of Business, http://www.sirp.se

No 2008/1, Sustainable Investment and Corporate Governance Working Papers from Sustainable Investment Research Platform

Abstract: Based on a formal model of how investments in corporate social responsibility act upon .rm value through goodwill, we derive the hypothesis that under uncertainty, bad news are detrimental to good-will, and subsequently have a negative impact on value. We examine by event study methodology whether bad news in the form of environmental (EV) incidents a¤ect .rm value negatively as measured by abnormal returns using a global data set. An EV incident is a company incident allegedly in violation of international norms on environmen-tal issues. We analyze 142 EV incidents 2003-2006. The incidents are generally associated with negative cumulative abnormal returns, but which are not statistically signi.cant, except for incidents for .rms in the EURO zone. The results are robust with respect to a number of variations in test methodology.

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Pages: 22 pages
Date: 2008-01-30
New Economics Papers: this item is included in nep-cfn, nep-env and nep-fmk
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:hhb:sicgwp:2008_001

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