Does Money Talk? Market Discipline through Selloffs and Boycotts
65 Pages Posted: 24 Jun 2019 Last revised: 24 Jul 2020
Date Written: July 15, 2020
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
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