Isolating the corporate reputational risk in environmental oil spill disasters

Jose Manuel Feria-Dominguez (), Enrique Jimenez-Rodriguez () and Ines Merino Fernandez-Galiano ()
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Jose Manuel Feria-Dominguez: Department of Finance and Accounting, Universidad Pablo de Olavide
Enrique Jimenez-Rodriguez: Department of Finance and Accounting, Universidad Pablo de Olavide
Ines Merino Fernandez-Galiano: Department of Finance and Accounting, Universidad Pablo de Olavide

No 13.02, Working Papers from Universidad Pablo de Olavide, Department of Financial Economics and Accounting (former Department of Business Administration)

Abstract: This paper isolate the corporate reputational risk incurred by Oil and Gas companies, listed in the NYSE, derived from recent medium sized and large oil spill disasters occurred from 2005 to 2011 in the US. For this purpose, we conduct a standard short-horizon daily event study analysis to calibrate the potential impact of such environmental episodes on the market value of the firms analyzed. Since the accidental spillages are proved to have a negative effect on the cumulative abnormal returns (henceforth, CAR) of the firm’s stock, reputational risk can be identified by adjusting abnormal returns by a certain Loss Ratio, in order to capture the difference between the plummeted firm’s market value and the operational loss incurred by the company. The new magnitude, CAR (Rep), is then introduced to disentangle operational losses from reputational damage.

Keywords: Corporate Reputational Risk; abnormal returns; sevent study; oil spills (search for similar items in EconPapers)
Pages: 27 pages
Date: 2013-07
New Economics Papers: this item is included in nep-ene, nep-env and nep-rmg
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http://www.upo.es/serv/bib/fiecac/fiecac1302.pdf First version, 2013

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Persistent link: https://EconPapers.repec.org/RePEc:pab:fiecac:13.02

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