The BP Oil Spill: Shareholder Wealth Effects and Environmental Disclosures

Abstract:     
We utilize one of the largest environmental disasters in history — the BP, PLC oil spill — to provide new evidence regarding environmental disclosures. We find evidence that among oil and gas firms (other than BP) with offshore drilling operations in United States waters, those with more expansive environmental disclosures suffered smaller negative shareholder wealth effects following the spill. This suggests that shareholders believe firms with more extensive environmental disclosures are better prepared to address possible future regulatory costs and possible future similar environmental incidents. We also document an increase in environmental disclosure, specifically disclosures of disaster readiness plans, in the year following the spill. Last, we find that firms with poorer past environmental performance were more likely to increase disclosures about disaster readiness plans, which is consistent with poorer environmental performers attempting to legitimize their lower environmental readiness.

Number of Pages in PDF File: 50

Keywords: Environmental disclosure, Stock returns

JEL Classification: M41, K32, G10

working papers series