An analysis of the stock market impact of environmental performance information

• Published in: Accounting forum Vol. 28; no. 1; pp. 7 - 26
• Main Authors: Lorraine, N.H.J., Collison, D.J., Power, D.M.
• Format: Journal Article
• Language: English
• Published: Elsevier Ltd 01.03.2004
• Subjects: Accidents; Companies; Environmental Agency; Environmental management; Great Britain; Information; Journalism; Pollution; Prices; Share prices; Shares; Statistics; Stock market; Share prices; Stock market; Environmental Agency
• ISSN: 0155-9982; 1467-6303
• DOI: 10.1016/j.accfor.2004.04.002

This paper examines whether publicity (either good or bad) about environmental performance affects companies’ share prices. To date, a lot of the research in this area has been conducted in a US setting and has arrived at inconclusive results. This investigation examines the topic in a UK context. Specifically, it looks at publicity about fines for environmental pollution as well as commendations about good environmental achievements to see whether such information influences share prices. The results indicate that there is a stock market response to such news especially for details on fines—typically up to 1 week after news is published. A cross-sectional analysis indicates that the share price response is mainly a function of the relative fine imposed on the firm; other explanatory variables such as environmental performance news or sector membership were unsuccessful in explaining variations in the market responses.