Financial Perceptions on Oil Spill Disasters: Isolating Corporate Reputational Risk

José M. Feria-Domínguez, Enrique Jiménez-Rodríguez and Inés Merino Fdez-Galiano
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José M. Feria-Domínguez: Department of Financial Economics and Accounting, Pablo de Olavide University, Seville 41013, Spain
Enrique Jiménez-Rodríguez: Department of Financial Economics and Accounting, Pablo de Olavide University, Seville 41013, Spain
Inés Merino Fdez-Galiano: Department of Financial Economics and Accounting, Pablo de Olavide University, Seville 41013, Spain

Sustainability, 2016, vol. 8, issue 11, 1-15

Abstract: The aim of this paper is to isolate the corporate reputational risk faced by US oil and gas companies—as listed on the New York Stock Exchange (NYSE)—after recent oil spill disasters. For this purpose, we have conducted a standard short-horizon daily event study analysis aimed at the calibration of the financial perceptions caused by these environmental episodes between 2005 and 2011, and the drop effect on the market value of the firms analyzed. We not only find significant negative impact on the stock prices of the companies analyzed but also significant cumulative negative abnormal returns (CAR) around the accidental spillages, especially for the longest event windows. Corporate reputational risk is also identified and even measured by adjusting abnormal returns by a certain loss ratio. A new metric, CAR(Rep), is then proposed to disentangle operational losses and the reputational damage derived from such negative financial perceptions.

Keywords: environmental damage; oil spill disaster; corporate reputational risk; financial perceptions; event study (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2016
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