Does Money Talk? Market Discipline through Selloffs and Boycotts

64 Pages Posted: 24 Jun 2019 Last revised: 10 May 2021

See all articles by Nickolay Gantchev

Nickolay Gantchev

University of Warwick - Warwick Business School; 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: May 10, 2021

Abstract

Can market discipline affect corporate environmental and social (E&S) policies? Using 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. As a consequence of investors’ reactions, firms with more E&S-motivated investors experience larger temporary declines in valuations and subsequently improve their E&S policies. The improvements in corporate policies are concentrated among firms with more informative stock prices and do not appear to be due to investor engagements, indicating that firms learn about their shareholders’ preferences from stock prices. We also show that following negative realizations of E&S risk, sales in E&S-conscious countries decrease but are not consistently associated with price declines and improvements in corporate E&S policies.

Keywords: Corporate social responsibility; Price Informativeness; 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 (May 10, 2021). 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)

University of Warwick - Warwick Business School ( email )

Coventry CV4 7AL
United Kingdom

HOME PAGE: http://www.NickolayGantchev.com

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

HOME PAGE: http://cepr.org

European Corporate Governance Institute (ECGI) ( email )

HOME PAGE: http://ecgi.global/users/nickolay-gantchev

Mariassunta Giannetti

Stockholm School of Economics ( email )

P.O. Box 6501
Sveavagen 65
SE-113 83 Stockholm
Sweden
+46 8 736 9607 (Phone)
+46 8 312 327 (Fax)

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
Rue Ducale 1 Hertogsstraat
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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