Environmental Incidents and the Market Value of Firms: An Empirical Investigation in the Chinese Context

40 Pages Posted: 19 Jun 2017

See all articles by Chris Lo

Chris Lo

Business Division, Institute of Textiles and Clothing, Hong Kong Polytechnic University

Christopher S. Tang

University of California, Los Angeles (UCLA) - Decisions, Operations, and Technology Management (DOTM) Area

Yi Zhou

Monash University - Department of Management

Andy Yeung

Hong Kong Polytechnic University - Department of Logistics and Maritime Studies

Di Fan

Macao University of Science and Technology (MUST) - School of Business

Date Written: June 16, 2017

Abstract

We examine firms listed on the Shanghai/Shenzhen Stock Exchange to investigate stock market reactions to 294 Chinese manufacturing firms involved in 618 environmental incidents between 2006 and 2013. Through our event studies, we find empirical evidence of a significantly negative stock market reaction to announcements of environmental incidents. Our empirical analysis reveals that Chinese firms with higher government share (of ownership) and recognition on social responsibility tend to be less affected by such incidents; however, Chinese firms with stronger personal political ties (i.e., top management teams or board members with concurrent or prior government appointments) are actually affected more when environmental incidents occur. Moreover, environmental incidents caused by Chinese firms can have a significantly negative impact on the market value of their overseas customers.

Keywords: Environmental Incident, China, Stock Market Reaction, Supply Chain, Social Responsibility

JEL Classification: M14

Suggested Citation

Lo, Chris K. Y. and Tang, Christopher S. and Zhou, Yi and Yeung, Andy and Fan, Di, Environmental Incidents and the Market Value of Firms: An Empirical Investigation in the Chinese Context (June 16, 2017). Available at SSRN: https://ssrn.com/abstract=2987976 or http://dx.doi.org/10.2139/ssrn.2987976

Chris K. Y. Lo

Business Division, Institute of Textiles and Clothing, Hong Kong Polytechnic University ( email )

11 Yuk Choi Rd
Hung Hom
Hong Kong

Christopher S. Tang (Contact Author)

University of California, Los Angeles (UCLA) - Decisions, Operations, and Technology Management (DOTM) Area ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

HOME PAGE: http://www.anderson.ucla.edu/x980.xml

Yi Zhou

Monash University - Department of Management ( email )

900 Dandenong Rd
Caulfield East, Victoria 3145
Australia

Andy Yeung

Hong Kong Polytechnic University - Department of Logistics and Maritime Studies ( email )

9/F, Li Ka Shing Tower
The Hong Kong Polytechnic University
Hong Kong, Hung Hom, Kowloon M923
China

Di Fan

Macao University of Science and Technology (MUST) - School of Business ( email )

Avenida Wai Long
Taipa
Macau

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