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ENVIRONMENTAL PERFORMANCE AND CAPITAL MARKETS--EVIDENCE FROM INDIA

Shreekant Gupta, Bishwanath Goldar and Shubham Dang
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Shreekant Gupta: Department of Economics, Delhi School of Economics
Bishwanath Goldar: Institute of Economic Growth
Shubham Dang: SCOPT Analytics

No 303, Working papers from Centre for Development Economics, Delhi School of Economics

Abstract: This paper examines whether capital markets in developing countries respond to news about environmental performance of firms thereby creating incentive for pollution control. In particular we conduct an event study of firms in three polluting industries in India (paper and pulp, cement and iron and steel) that were rated under the Green Rating Project. Along lines of earlier research we find the stock market generally penalizes weak environmental performance among firms. Interestingly, paper and pulp firms that were being rated for a second time and did strictly worse relative to their previous performance experienced significant negative returns. In terms of methodology, the paper controls for event day clustering by using the KP-statistic instead of the commonly used Z or BMP-statistic. We show when KP statistic is used, the negative impact of poor environmental performance on the stock returns is not as pronounced as the standard Z or BMP statistic would lead one to believe.

JEL-codes: G14 Q53 G32 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2019-12
New Economics Papers: this item is included in nep-cfn, nep-ene and nep-env
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