Stock market and deterrence effect: A mid-run analysis of major environmental and non-environmental accidents |
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Institution: | 1. Department of Physics, Nasarawa State University Keffi, P.M.B 1022 Keffi, Nigeria;2. Department of Physics, Universiti Teknologi Malaysia, 81310 Johor Baru, Malaysia;3. Norwegian Institute for Air Research (NILU), Department of Atmospheric and Climate Research (ATMOS), Kjeller, Norway;4. Environment and Sustainability Program, and Department of Biological Sciences, University of South Carolina, Columbia, SC 29208, United States;5. Faculty of Biotechnology, Chubu University, Kasugai, Japan;6. State Key Laboratory of Marine Environmental Science, Xiamen University, Xiamen 361005, China |
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Abstract: | We analyze the stock market reaction to 161 major environmental and non-environmental accidents, reported on the front page of the New York Times for half a century. To determine if the market induces a real deterrence effect, we extend the event windows up to one year. On average, the market reacts negatively and enduringly to the announcement of an accident. However, this average effect is largely driven by the airline industry and by government interventions. The estimated average compounded abnormal return following environmental accidents does not differ from zero after one year. This does not exclude, in severe events affecting large firms, huge losses in equity value, but the significant negative cumulative abnormal returns estimated immediately after an environmental accident in previous studies do not persist. Our results suggest that in a market driven by institutional investors, the deterrence effect is likely to be weak. |
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Keywords: | Deterrence effect Environmental accident Event study Mid-run analysis Stock market Disaster Catastrophe |
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