Environmental corporate reputation: evidence from capital markets

Resumen

The motivation for this study is based on the rising awareness of environmental issues and the growing expectation for corporations to take part in environmental initiatives. This dissertation seeks to broaden knowledge about how capital markets value environmental damage. We address each of these issues in two ways: (1) Exploring the disciplinary role of shareholders on corporate environmental (mis)conduct, i.e., rewarding and punishing firms through stock market forces; and (2) evaluating the effectiveness of environmental disclosures (e.g., ESG disclosure) as a communication instrument about the firm's engagement as well as a source of reputation. In accordance with our approach to these issues, we conduct three event studies. The empirical analyses examine capital markets and environmental events, including legal actions, industrial accidents, and political events worldwide. These events have a high-level impact on the media, exposing firms and potentially damaging their corporate reputations. Using a short-term event study analysis, we apply both the market model and the three-factor model. We find markets react by rewarding positive environmental conduct and punishing negative misconduct regarding ecological disasters. Investors are more inclined to reward good environmental behaviour than to punish negative behaviour. Finally, voluntary disclosures are perceived as relevant and are rewarded by investors in the context of potential reputational damage. The contribution of this thesis is multidisciplinary; it contributes by broadening knowledge in the fields of finance, business ethics, and corporate social responsibility (CSR). The main findings are of great value for companies, financial analysts, and academics