Sustainable Investment and Corporate Governance Working Papers, Sustainable Investment Research Platform
No 2008/1:
How Bad is Bad News? Assessing the Effects of Environmental Incidents on Firm Value
Tommy Lundgren ()
and Rickard Olsson ()
Abstract: Based on a formal model of how investments in corporate
social responsibility act upon .rm value through goodwill, we derive the
hypothesis that under uncertainty, bad news are detrimental to good-will,
and subsequently have a negative impact on value. We examine by event study
methodology whether bad news in the form of environmental (EV) incidents
a¤ect .rm value negatively as measured by abnormal returns using a global
data set. An EV incident is a company incident allegedly in violation of
international norms on environmen-tal issues. We analyze 142 EV incidents
2003-2006. The incidents are generally associated with negative cumulative
abnormal returns, but which are not statistically signi.cant, except for
incidents for .rms in the EURO zone. The results are robust with respect to
a number of variations in test methodology.
Keywords: No; keywords; (follow links to similar papers)
22 pages, January 30, 2008
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