Stock Market and Deterrence Effect: A Long-Run Analysis of Major Environmental and Non-Environmental Disasters

36 Pages Posted: 18 Apr 2013

See all articles by Cécile Carpentier

Cécile Carpentier

Laval University; Center for Interuniversity Research and Analysis on Organization (CIRANO); University of Lille II - European Center for Corporate Control Studies

Jean-Marc Suret

Laval University; Center for Interuniversity Research and Analysis on Organization (CIRANO); European Center for Corporate Control Studies

Date Written: April 18, 2013

Abstract

Based on an original sample of 170 events reported on the front page of the New York Times during half a century, we analyze the mid- and long-run effects of major industrial disasters on shareholders’ wealth. Environmental crises have a stronger negative effect during the weeks following the events than non-environmental crises, but both groups induce huge market losses. We focus on the long-run effect because institutional investors, who own the majority of shares, generally have long investment horizons. Controlling for several dimensions, we evidence large market losses reaching billions of dollars, on average, during the first year following the disaster. Environmental crises are associated with smaller effects when expressed in abnormal returns, but costs in dollars are higher than for the other crises, because firms involved are larger. In the long run, the market induces a significant deterrence effect, mainly when the crises are followed by government intervention.

Keywords: Deterrence effect, environmental disaster, event study, long-run analysis, stock market, crisis, catastrophe

Suggested Citation

Carpentier, Cécile and Suret, Jean-Marc, Stock Market and Deterrence Effect: A Long-Run Analysis of Major Environmental and Non-Environmental Disasters (April 18, 2013). Available at SSRN: https://ssrn.com/abstract=2253272 or http://dx.doi.org/10.2139/ssrn.2253272

Cécile Carpentier

Laval University ( email )

Pavilion Palasis Prince
Quebec, Quebec G1V 0A6
Canada

Center for Interuniversity Research and Analysis on Organization (CIRANO) ( email )

2020 rue University, 25th floor
Montreal, Quebec H3C 3J7
Canada

University of Lille II - European Center for Corporate Control Studies ( email )

2 rue de Mulhouse
BP381
Lille, 59800
France

Jean-Marc Suret (Contact Author)

Laval University ( email )

Accounting School
Quebec, P.Q. G1K 7P4
Canada
418-656-7134 (Phone)
418-656-7746 (Fax)

Center for Interuniversity Research and Analysis on Organization (CIRANO) ( email )

1130 rue Sherbrooke Ouest
Bureau 1400
Montreal, Quebec H3A 2M8
Canada

European Center for Corporate Control Studies ( email )

2 rue de Mulhouse
BP381
Lille, 59800
France

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