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Stock Market Response to Firms’ Misconduct

Elisa Navarra

No 2022-40, Working Papers ECARES from ULB -- Universite Libre de Bruxelles

Abstract: Labor rights violations and environmental challenges have caused companies to comeunder increasing society’s pressure to achieve higher sustainability standards. Using a noveldataset of worldwide industrial disasters and companies allegedly involved in them, I examinewhether large companies suffer systematic stock market losses after disasters. I estimate anaverage drop in price returns of 1.47 percentage points on the day after the disaster and3.21 over one week. Accordingly, volatility soars. I then discuss the possible mechanismsbehind this negative market response. I focus on harm to the reputation for sustainabilityand I examine the media’s attention to environmental and labor topics through a sentimentanalysis of disaster-related news. I find that a more negative tone of the news is associatedwith larger stock market losses.

Keywords: Industrial Disasters; Reputation; Stock Market Returns (search for similar items in EconPapers)
JEL-codes: F23 F63 G14 Q53 (search for similar items in EconPapers)
Pages: 62 p.
Date: 2022-12
New Economics Papers: this item is included in nep-env and nep-fmk
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Handle: RePEc:eca:wpaper:2013/352568