Does Money Talk? Market Discipline through Selloffs and Boycotts

59 Pages Posted: 24 Jun 2019 Last revised: 16 Jul 2020

See all articles by Nickolay Gantchev

Nickolay Gantchev

Southern Methodist University (SMU) - Finance Department; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Mariassunta Giannetti

Stockholm School of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Swedish House of Finance

Rachel Li

University of Alabama - Department of Economics, Finance and Legal Studies

Multiple version iconThere are 2 versions of this paper

Date Written: July 15, 2020

Abstract

Can market discipline affect corporate environmental and social (E&S) policies? Using novel international data on negative news coverage of corporate E&S risks, we show that E&S-conscious investors divest firms with heightened E&S risk. We also find that these firms’ sales in E&S-conscious countries decrease. As a consequence of investors’ and customers’ reactions, firms with more E&S motivated investors and customers experience temporary declines in valuations and subsequently improve their E&S policies. Our results indicate that investors’ divestitures and customers’ reduced demand can trigger changes in corporate policies and decrease future negative E&S incidents.

Keywords: Corporate social responsibility; Real effects of financial markets; Institutional investors; Sustainability; Corporate governance; Culture

JEL Classification: G15, G23, G30, M14

Suggested Citation

Gantchev, Nickolay and Giannetti, Mariassunta and Li, Qingqiu, Does Money Talk? Market Discipline through Selloffs and Boycotts (July 15, 2020). European Corporate Governance Institute – Finance Working Paper No. 634/2019, Swedish House of Finance Research Paper No. 19-9, SMU Cox School of Business Research Paper No. 19-7, Available at SSRN: https://ssrn.com/abstract=3409455 or http://dx.doi.org/10.2139/ssrn.3409455

Nickolay Gantchev (Contact Author)

Southern Methodist University (SMU) - Finance Department ( email )

United States
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Centre for Economic Policy Research (CEPR) ( email )

London
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HOME PAGE: http://cepr.org

European Corporate Governance Institute (ECGI) ( email )

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Mariassunta Giannetti

Stockholm School of Economics ( email )

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SE-113 83 Stockholm
Sweden
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HOME PAGE: http://sites.google.com/site/mariassuntagiannetti/Home

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
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1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

Qingqiu Li

University of Alabama - Department of Economics, Finance and Legal Studies ( email )

P.O. Box 870244
Tuscaloosa, AL 35487
United States

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