Effects of Harmful Environmental Events on Reputations of Firms

42 Pages Posted: 15 Apr 1999

See all articles by Kari Jones

Kari Jones

University of Georgia - Department of Banking and Finance; Emory University - Department of Economics; Georgia Institute of Technology

Paul H. Rubin

Emory University - Department of Economics

Date Written: April 1999

Abstract

Many previous event studies have found unexpectedly large losses to firms involved in negative incidents. Many of these studies' authors explain such losses as "goodwill losses" or "reputation effects." To test this hypothesis, we search for residual losses (in excess of direct costs) to firms involved in events which produce ill will, but do not affect the quality of their final products nor break implicit labor or supply contracts. We find an overall insignificant capital market response to a sample of 98 negative environmental events (representing all such incidents reported in the Wall Street Journal between 1970 and 1992 in which electric power companies or oil firms with listed stocks were involved). Although others have found similar outcomes for more limited samples, our results enhance previous research by extending similar findings to a broader range of environmental incidents over a longer time period. Further, our findings suggest that the large residual losses of other studies may be due to reputation (and not measurement errors or event study idiosyncrasies), but only when the notion of "reputation effects" is limited to punishment solely by those who are directly harmed by the firms' conduct.

JEL Classification: D2, G3, K0, Q0

Suggested Citation

Jones, Kari and Rubin, Paul H., Effects of Harmful Environmental Events on Reputations of Firms (April 1999). Available at SSRN: https://ssrn.com/abstract=158849 or http://dx.doi.org/10.2139/ssrn.158849

Kari Jones

University of Georgia - Department of Banking and Finance ( email )

Terry College of Business
Athens, GA 30602-6253
United States

Emory University - Department of Economics ( email )

1602 Fishburne Drive
Atlanta, GA 30322
United States

Georgia Institute of Technology ( email )

781 Marietta Street, NW
School of Economics Room 219, Habersham Building
Atlanta, GA 30332
United States
404-894-9006 (Phone)

Paul H. Rubin (Contact Author)

Emory University - Department of Economics ( email )

1350 Main Steet #1703
Sarasota, FL 34236
United States
14049310493 (Phone)

HOME PAGE: http://www.economics.emory.edu/Rubi.htm

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