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News Media as a Channel of Environmental Information Disclosure: Evidence from an EGARCH Approach

Ran Zhang (), Kenneth Simons and David Stern ()
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Ran Zhang: Department of Economics, Rensselaer Polytechnic Institute, Troy, NY 12180-3590, USA

Rensselaer Working Papers in Economics from Rensselaer Polytechnic Institute, Department of Economics

Abstract: This paper incorporates EGARCH modeling in a financial event study relating firm value to negative environmental news. News media provide informal information channels unlike formal government disclosure programs. This paper improves on previous studies by using a larger sample than most studies, treating heteroskedasticity in the disturbance term with a hybrid method that allows EGARCH, and comparing stock market reactions across industries and event types. Both standard and hybrid methods reveal reductions in firms’ stock market valuations by on average 1.2% in response to negative environmental events. Significant negative market reactions to environmental news arise for all industry groups and event types analyzed. Accidents and complaints yield 2.0% mean reductions in stock market value, versus later lawsuits and court decisions with 1.5% and 0.8% reductions respectively. Firms in traditional polluting industries are most affected. These stock market impacts suggest that informal environmental information channels may financially incentivize firms’ self-regulation.

JEL-codes: Q50 G14 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-env
Date: 2010-01
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