Penalties for industrial accidents: the impact of the Deepwater Horizon accident on BP’s reputation and stock market returns

William M.C. Guire, Ellen Alexandra Holtmaat and Aseem Prakash

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Do visible industrial accidents damage firms’ reputations and depress their stock market returns, and do these penalties spill over to other firms in the industry? On April 20, 2010, the Deepwater Horizon offshore oil rig in the Gulf of Mexico leased by BP exploded and sank, causing 11 deaths and the largest marine oil spill in US history. We examine the impact of this accident on BP’s reputation and stock market performance using data from YouGov’s BrandIndex and Capital IQ’s financial data for the period 2007–2017. We employ a synthetic control analysis to examine the extent and duration of these penalties. We find that in the aftermath of the Deepwater accident, BP’s reputation declined by approximately 50% relative to the synthetic control, and this decline persisted through the end of 2017. Yet, in terms of financial market returns, though the stock price dropped drastically in the first two months, we do not find a statistically significant decline in the stock market returns either in the mid-term (1–2 years) or the long term (2–7 years). In terms of spillover effects, we find no evidence of reputational damage or a decline in stock market returns for other oil and gas firms. These findings suggest that while environmental accidents invite swift and lasting reputational penalties, they might not depress the stock market performance in the long run. Moreover, the impact either on reputation or stock market returns does not necessarily spill over to other firms in the same industry.

Keywords: REF; fund (search for similar items in EconPapers)
JEL-codes: E50 Q51 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2022-06-15
New Economics Papers: this item is included in nep-ene
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Published in PLOS ONE, 15, June, 2022, 17(6). ISSN: 1932-6203

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