Stock Market Response to Firms’ Misconduct

61 Pages Posted: 4 Oct 2021 Last revised: 20 Dec 2022

See all articles by Elisa Navarra

Elisa Navarra

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES)

Date Written: September 1, 2021

Abstract

Labor rights violations and environmental challenges have caused companies to come under
increasing society’s pressure to achieve higher sustainability standards. Using a novel dataset of worldwide industrial disasters and companies allegedly involved in them, I examine whether large companies suffer systematic stock market losses after disasters. I estimate an average drop in price returns of 1.47 percentage points on the day after the disaster and 3.21 over one week. Accordingly, volatility soars. I then discuss the possible mechanisms behind this negative market response. I focus on harm to the reputation for sustainability and I examine the media’s attention to environmental and labor topics through a sentiment analysis of disaster-related news. I find that a more negative tone of the news is associated with larger stock market losses.

Keywords: Industrial Disasters, Reputation, Stock Market Returns

JEL Classification: F23, F63, G14, Q53

Suggested Citation

Navarra, Elisa, Stock Market Response to Firms’ Misconduct (September 1, 2021). Available at SSRN: https://ssrn.com/abstract=3930980 or http://dx.doi.org/10.2139/ssrn.3930980

Elisa Navarra (Contact Author)

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES) ( email )

HOME PAGE: http://https://sites.google.com/view/elisanavarra

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