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Market Reaction to Environmental Controversies: The role of perceived behaviour

Emidi, Christian LU and Galan, Sebastian LU (2023) NEKN02 20231
Department 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:
author
Emidi, Christian LU and Galan, Sebastian LU
supervisor
organization
course
NEKN02 20231
year
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}},
}