Chemical industry disasters and the sectoral transmission of financial market contagion

Shaen Corbet, Charles Larkin and Caroline McMullan

Research in International Business and Finance, 2018, vol. 46, issue C, 490-501

Abstract: Industrial incidents causing injury and fatality generate substantial costs to publicly traded firms. Risks associated with these potential incidents are not limited to only those companies that might be directly involved. Theoretically, stock markets are designed to self-regulate safety standards by decreasing company valuations should an incident occur, due to anticipated increased costs. This paper examines the sectoral consequences of such incidents in the United States, that is, the spillover effects of an industrial incident on firms operating in similar industrial operations. This is identified through the transmission of contagion within stock market sectors at the time of such incidents using a dynamic conditional correlation (DCC) multivariate GARCH methodology. The results indicate larger incidents, as measured by the number of injuries and fatalities, generate the largest contagion effects. Also, smaller competitor companies experience the largest contagion as measured by volatility effects as a result of sectoral chemical incidents, indicating that investors perceive increased risk factors and/or additional regulatory costs when valuing these companies in the period thereafter. We hypothesise that the observed reaction originates from expected increases in future sectoral operating costs through anticipated legislative and/or regulatory changes as well as uncertainty in the period immediately after an incident.

Keywords: Dynamic correlation; DCC-GARCH; Contagion; Industrial incident; Crisis management; Stock markets (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0275531918301661
Full text for ScienceDirect subscribers only

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:eee:riibaf:v:46:y:2018:i:c:p:490-501

DOI: 10.1016/j.ribaf.2018.06.005

Access Statistics for this article

Research in International Business and Finance is currently edited by T. Lagoarde Segot

More articles in Research in International Business and Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().