On the Stock Market’s Reaction to Major Railroad Accidents

Thomas J. Walker, Kuntara Pukthuanthong and Sergey S. Barabanov

Journal of the Transportation Research Forum, 2006, vol. 45, issue 01

Abstract: This study examines the impact of train accidents on the stock price performance of the involved railroad companies. We employ a sample of 26 accidents involving trains operated by publicly traded U.S. and Canadian railroad companies between January 1993 and December 2003. Event study methodology is used to measure the abnormal performance of the involved railroad firms to these accidents. In addition, a series of univariate tests and cross-sectional regression analysis is employed to determine the factors that drive the abnormal returns for the firms in the sample. The magnitude of the initial price decline appears to be driven by various characteristics of both the firm and the accident itself. Specifically, there is strong evidence that suggests that one of the main determinants of the abnormal returns is expected legal liability claims against the railroads. Abnormal performance is negatively related to firm size and the number of injuries and fatalities resulting from the accident. In addition, accidents that result in hazardous material spills cause significantly larger stock price drops in the days following the event. Finally, investors appear to differentiate between accident causes. Accidents caused by reckless or illegal behavior on behalf of one or more of the railroad company’s employees result in particularly large price declines. Accidents caused by mechanical failures or signal malfunctions, on the other hand, only cause small stock price drops.

Keywords: Industrial; Organization (search for similar items in EconPapers)
Date: 2006
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
https://ageconsearch.umn.edu/record/206779/files/871-981-1-PB.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ags:ndjtrf:206779

DOI: 10.22004/ag.econ.206779

Access Statistics for this article

More articles in Journal of the Transportation Research Forum from Transportation Research Forum
Bibliographic data for series maintained by AgEcon Search ().