Isolating the corporate reputational risk in environmental oil spill disasters

  1. Feria Domínguez, José Manuel
  2. Jiménez-Rodríguez, Enrique
  3. Merino Fernández-Galiano, Inés
Working Papers (Universidad Pablo de Olavide, de Sevilla. Departamento de Economía Financiera y Contabilidad)

Year of publication: 2013

Issue: 2

Type: Article


This paper isolate the corporate reputational risk incurred by Oil and Gas companies, listed in the NYSE, derived from recent medium sized and large oil spill disasters occurred from 2005 to 2011 in the US. For this purpose, we conduct a standard short-horizon daily event study analysis to calibrate the potential impact of such environmental episodes on the market value of the firms analyzed. Since the accidental spillages are proved to have a negative effect on the cumulative abnormal returns (henceforth, CAR) of the firm�s stock, reputational risk can be identified by adjusting abnormal returns by a certain Loss Ratio, in order to capture the difference between the plummeted firm�s market value and the operational loss incurred by the company. The new magnitude, CAR (Rep), is then introduced to disentangle operational losses from reputational damage.