Public information as a deterrent to environmental infractions

Duane Graddy and Thomas Strickland

Applied Economics, 2007, vol. 39, issue 15, 1961-1972

Abstract: Past studies of the impact of publicly announced violations of environmental laws on the market value of the offending firms have yielded equivocal results. A particularly troubling aspect of this research is whether the market imposes a reputation penalty for such violations. This article uses the event-study methodology to estimate the effect of announced environmental infractions on the market returns of the violators. Stockholders experienced significant negative abnormal returns in the event window. Cross-sectional analysis showed these cumulative losses to be a function of firm size, type of legal action and specific toxin. The reputation component of abnormal returns was influenced by these factors as well.

Date: 2007
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DOI: 10.1080/00036840600707084

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