Scandinavian Working Papers in Economics

CERE Working Papers,
CERE - the Center for Environmental and Resource Economics

No 2010:3: Environmental Incidents and Firm Value –International Evidence using a MultiFactor Event Study Framework

Tommy Lundgren () and Rickard Olsson
Additional contact information
Tommy Lundgren: Centre of Environmental and Resource Economics, Postal: Centre of Environmental and Resource Economics, Swedish University of Agricultural Sciences, 901 87 Umeå, Sweden
Rickard Olsson: Umeå School of Business, Postal: Umeå School of Business, Umeå University, 901 83 Umeå, Sweden

Abstract: Event study methodology is used to analyze whether bad news in the form of environmental (EV) incidents affect firm value negatively. An international sample of firms with EV incidents is studied. It is found that EV incidents are generally associated with loss of value. For European firms the loss is statistically significant and the magnitude of the abnormal returns should be of economic significance to corporations and investors. The results are not sensitive to multiple variations in methodology, including the use of international versions of the market model as well as of multi-factor models of the Fama-French type. Results are also robust to different parametric and non-parametric test statistics.

Keywords: multi-country-multi-factor event study; environmental incidents; abnormal returns

JEL-codes: M14

32 pages, March 30, 2010

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