How Do Capital Markets Respond to Environmental News?

countries, there is a large variation in the environmental performance and compliance of firms. Thus, there may be incentives apart from formal regulation to which firms respond; for instance, the influence of “Capital Markets”. Indeed, capital markets are considered to be one of the possible agents that can scrutinise firms’ environmental performance, and therefore information might acquire a new role, and generate incentives for pollution control. In this context, capital markets (through investors) have a role in the enforcement process. There is evidence from a number of countries that capital markets react to the release of new environmental information. Thus, the aim of this paper is to analyse the impact of public information regarding the environmental performance of plants on investors in Chile. Public information is gathered from “El Mercurio” newspaper (main broadsheet in Chile) in the form of environmental news. The impact of such information is measured by fluctuations on the stock market of publicly traded companies over the period 1992-2000. The event-study methodology is thus used to examine the reaction of the stock market to positive and negative environmental news (also called events).