The Economic and Financial Impact of Negative Environmental and Social Practices: Evidence from Consumer Store Visits

Abstract

We study the economic and financial impact of firm-level negative environmental and social (E&S) incidents. Using Safegraph’s daily foot-traffic data at the store level, we find a significant, albeit relatively small, decrease in a firm’s store visits following such incidents. The decrease in visits by more E&S-conscious consumers is nearly four times greater than that by less E&S-conscious consumers. Our results are more pronounced when (1) the negative incident is more severe and widespread; (2) populations feature more educated and younger consumers; (3) firms have high E&S ratings and large advertising expenditures; and (4) local product markets are more competitive. Lastly, we find that following a negative E&S incident, the average firm loses about $19.2 million sales in more E&S-conscious areas and about $9.6 million in less E&S-conscious areas. Our findings suggest that firms’ E&S practices can directly affect firm value via consumer shopping behaviors and cash flows.

Keywords: Environmental and Social Practices, Store Visits, Sales, Firm Value, Foot Traffic

JEL Classification: D12, G30, M14