Stock market responses to chemical accidents in Japan: An event study |
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| Institution: | 1. Department of Mechanical Engineering, Indian Institute of Technology Patna, Bihta, Bihar, 801103, India;2. Division 2.2, Reactive Substances and Systems, Federal Institute for Materials Research and Testing (BAM), Unter den Eichen 87, 12205, Berlin, Germany;3. Department of Mechanical Engineering, Indian Institute of Technology Bombay, Mumbai, Maharashtra, 400076, India;1. School of Chemical Machinery and Safety Engineering, Dalian University of Technology, Dalian 116024, China;2. State Key Laboratory of Fire Science, University of Science and Technology of China, Hefei 230027, China;3. Department of Chemical System Engineering, School of Engineering, The University of Tokyo, Hongo 7-3-1, Bunkyo-ku, Tokyo 113-8656, Japan;1. Grupo de Diseño de Productos y Procesos (GDPP), Department of Chemical Engineering, Universidad de los Andes, Bogotá, Colombia;2. School of Management, Universidad de los Andes, Bogotá, Colombia;3. Centro para la Optimización y Probabilidad Aplicada (COPA), Department of Industrial Engineering, Universidad de los Andes, Bogotá, Colombia;1. London South Bank University Explosion & Fire Research Group, 103 Borough Rd, SE1 0AA, UK;2. Honeywell Aerospace, Bunford Ln, Yeovil, BA20, UK |
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| Abstract: | Despite recent major chemical process accidents in Japan, the top management teams of firms still avoid taking costly risk reduction measures because of their low perceived impact on firm performance. The disclosure of information on accident risks might motivate managers to enhance workplace safety because of the subsequent evaluation of firms by investors in stock markets. If the disclosed risk information is newly available for investors, firms with a high risk of accidents would receive a poor evaluation by stock markets and thus managers would take risk reduction measures to prevent stock prices from declining. In this study, we conduct an event study analysis to examine whether accident risk information is already reflected in stock prices, using data on the Japanese chemical industry. The results of our event study show that the estimated cumulative average abnormal returns of firms' stocks are significantly negative after severe accidents actually occurred. This finding implies that risk information is not already reflected in the stock prices of Japanese chemical firms and that the disclosure of accident risk information has the potential to motivate the top management teams of firms to reduce their firms’ accident risk. |
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| Keywords: | Event study Stock price Chemical accident Risk indicator Information disclosure Incentive |
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