Stock market and deterrence effect: A mid-run analysis of major environmental and non-environmental accidents

Cécile Carpentier and Jean-Marc Suret

Journal of Environmental Economics and Management, 2015, vol. 71, issue C, 1-18

Abstract: We analyze the stock market reaction to 161 major environmental and non-environmental accidents, reported on the front page of the New York Times for half a century. To determine if the market induces a real deterrence effect, we extend the event windows up to one year. On average, the market reacts negatively and enduringly to the announcement of an accident. However, this average effect is largely driven by the airline industry and by government interventions. The estimated average compounded abnormal return following environmental accidents does not differ from zero after one year. This does not exclude, in severe events affecting large firms, huge losses in equity value, but the significant negative cumulative abnormal returns estimated immediately after an environmental accident in previous studies do not persist. Our results suggest that in a market driven by institutional investors, the deterrence effect is likely to be weak.

Keywords: Deterrence effect; Environmental accident; Event study; Mid-run analysis; Stock market; Disaster; Catastrophe (search for similar items in EconPapers)
JEL-codes: G14 Q51 Q53 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (30)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeeman:v:71:y:2015:i:c:p:1-18

DOI: 10.1016/j.jeem.2015.01.001

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Journal of Environmental Economics and Management is currently edited by M.A. Cole, A. Lange, D.J. Phaneuf, D. Popp, M.J. Roberts, M.D. Smith, C. Timmins, Q. Weninger and A.J. Yates

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