Does Money Talk? Market Discipline Through Selloffs and Boycotts

53 Pages Posted: 15 Nov 2019

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: November 2019

Abstract

Using a novel dataset of negative news coverage of the environmental and social (E&S) practices of firms around the world, we show that customers and investors can provide market discipline and impose their ethical standards on firm policies. Investors sell firms with heightened E&S risk, especially if they are from E&S conscious countries or hold portfolios with high sustainability ratings. Similarly, heightened E&S risk is associated with a drop in firms' sales in E&S conscious countries. This behavior of E&S conscious investors and customers leads to declines in stock prices, which push firms to improve their E&S policies in the years following negative realizations of E&S risk. Overall, our results indicate that customers and shareholders are able to impose their social preferences on firms, suggesting that market discipline works.

Keywords: corporate governance, Corporate social responsibility, Culture, Environment, institutional investors

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 (November 2019). CEPR Discussion Paper No. DP14098. Available at SSRN: https://ssrn.com/abstract=3486249

Nickolay Gantchev (Contact Author)

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

United States
214-768-4128 (Phone)

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 ECARES ULB CP 114
B-1050 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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