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Industry effects of corporate environmental and social scandals: Evidence from China

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  • Wu, Zhenshu
  • Pownall, Rachel
  • Shih, Yi-Cheng
  • Wang, Yao

Abstract

This study employs novel corporate environmental, social, and governance profiles to investigate the industry effects of environmental and social (ES) scandals in China. The findings reveal a notable decrease in stock prices for rival firms during scandal announcements. Further, we document a significant, positive correlation between rivals' ES performance and the abnormal returns over a five-day period surrounding the scandals. This correlation is more pronounced in rivals that disclose ES information. Additionally, relative to high-performing rivals, those with weaker ES performance significantly enhance their ES performance in the following year, driven by the perceived ES value in industry scandals. The findings also underscore the influence of state ownership, external governance environment, and industry competition on the spillover effects of ES scandals via risk channels.

Suggested Citation

  • Wu, Zhenshu & Pownall, Rachel & Shih, Yi-Cheng & Wang, Yao, 2024. "Industry effects of corporate environmental and social scandals: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 95(PC).
    • Handle: RePEc:eee:finana:v:95:y:2024:i:pc:s1057521924004368
    DOI: 10.1016/j.irfa.2024.103504
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    More about this item

    Keywords

    ESG; ES scandal; Industry effect; Event study; China;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development

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