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Stock market and deterrence effect: A mid-run analysis of major environmental and non-environmental accidents

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  • Carpentier, Cécile
  • Suret, Jean-Marc

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.

Suggested Citation

  • Carpentier, Cécile & Suret, Jean-Marc, 2015. "Stock market and deterrence effect: A mid-run analysis of major environmental and non-environmental accidents," Journal of Environmental Economics and Management, Elsevier, vol. 71(C), pages 1-18.
    • Handle: RePEc:eee:jeeman:v:71:y:2015:i:c:p:1-18
    DOI: 10.1016/j.jeem.2015.01.001
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    More about this item

    Keywords

    Deterrence effect; Environmental accident; Event study; Mid-run analysis; Stock market; Disaster; Catastrophe;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling

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