Market Reaction to Environmental Controversies: The role of perceived behaviour
(2023) NEKN02 20231Department of Economics
- Abstract
- The rising importance of ESG related issues has been witnessed both
by recent literature and surveys. In this paper, we first analyse whether
environmental controversies have a significant impact on the involved
companies’ stock returns. Secondly, we investigate whether companies’ perceived environmental behaviour influences the market’s reaction. We contribute to the literature by using the environmental pillar
score from the year prior to the controversy (lagged E score) as a proxy
for perceived environmental behaviour. Our sample consists of 86 controversies involving U.S. public companies in the years 2017-2021. We
apply an event study methodology to analyse the cumulative average
abnormal returns (CAAR) in an event window... (More) - The rising importance of ESG related issues has been witnessed both
by recent literature and surveys. In this paper, we first analyse whether
environmental controversies have a significant impact on the involved
companies’ stock returns. Secondly, we investigate whether companies’ perceived environmental behaviour influences the market’s reaction. We contribute to the literature by using the environmental pillar
score from the year prior to the controversy (lagged E score) as a proxy
for perceived environmental behaviour. Our sample consists of 86 controversies involving U.S. public companies in the years 2017-2021. We
apply an event study methodology to analyse the cumulative average
abnormal returns (CAAR) in an event window spanning from three
days before the event date to three days after. The result, although
not statistically significant, suggests that there has been a negative
reaction following the controversial events visible especially between
day 0 and day 2. Subsequently, we compute cumulative abnormal returns (CAR) for each controversy over this period (i.e., between day 0
and day 2), and regress it on the lagged E score. The results shows a
positive significant relationship between the lagged E score and CAR
suggesting that perceived firm environmental behaviour may function
as an anchor from which subsequent events are judged. (Less)
Please use this url to cite or link to this publication:
http://lup.lub.lu.se/student-papers/record/9119283
- author
- Emidi, Christian LU and Galan, Sebastian LU
- supervisor
- organization
- course
- NEKN02 20231
- year
- 2023
- type
- H1 - Master's Degree (One Year)
- subject
- keywords
- ESG, environmental controversies, market reaction, perceived behaviour, anchoring
- language
- English
- id
- 9119283
- date added to LUP
- 2023-11-24 08:56:47
- date last changed
- 2023-11-24 08:56:47
@misc{9119283, abstract = {{The rising importance of ESG related issues has been witnessed both by recent literature and surveys. In this paper, we first analyse whether environmental controversies have a significant impact on the involved companies’ stock returns. Secondly, we investigate whether companies’ perceived environmental behaviour influences the market’s reaction. We contribute to the literature by using the environmental pillar score from the year prior to the controversy (lagged E score) as a proxy for perceived environmental behaviour. Our sample consists of 86 controversies involving U.S. public companies in the years 2017-2021. We apply an event study methodology to analyse the cumulative average abnormal returns (CAAR) in an event window spanning from three days before the event date to three days after. The result, although not statistically significant, suggests that there has been a negative reaction following the controversial events visible especially between day 0 and day 2. Subsequently, we compute cumulative abnormal returns (CAR) for each controversy over this period (i.e., between day 0 and day 2), and regress it on the lagged E score. The results shows a positive significant relationship between the lagged E score and CAR suggesting that perceived firm environmental behaviour may function as an anchor from which subsequent events are judged.}}, author = {{Emidi, Christian and Galan, Sebastian}}, language = {{eng}}, note = {{Student Paper}}, title = {{Market Reaction to Environmental Controversies: The role of perceived behaviour}}, year = {{2023}}, }