Sustainable Investment and Corporate Governance Working Papers, Sustainable Investment Research Platform
No 2010/14:
Stock Market Reaction to the Global Financial Crisis: the Role of Corporate Governance and Product Quality Ratings in the Lehman Brothers' Event
Leonardo Becchetti ()
, Claudia Ceniccola ()
and Rocco Ciciretti ()
Abstract: We analyse with an event study approach the stock market
reaction to one of the most important episodes in the global nancial crisis
(Lehman Brothers ling for chapter 11). Our inquiry on abnormal returns of
about 2,700 stocks around the event date documents that the shock induces
investors to incorporate insights from (or re-adjust the pre-event expected
impact of) corporate social responsibility (CSR) ratings in stock
evaluation in a sort of "flight to CSR quality". The main CSR domains with
signi cant eff ects on abnormal returns (corporate governance and product
quality) are exactly those in which the defaulted company presented
weaknesses according to its ex-ante CSR ratings. We also document that the
reaction to the Lehman event extends beyond the event date and that
investors rationally attribute more value to the direct information on
strengths and weaknesses in each CSR rating domain than to aliation/non
aliation to the CSR stock market index (FTSE KLD 400 Social Index). A more
general result of our paper is that investors seem to discover, after the
event, that CSR ratings provide original information which is not captured
by traditional - nancial rating indicators.
Keywords: Global Financial Crisis; Event Study; Corporate Governance; Product Quality; Ratings.; (follow links to similar papers)
43 pages, July 8, 2010
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