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Shocks, stocks and ratings : the financial community response to global environmental and health controversies

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Scholtens_2021_GEC_Shocks_CC.pdf (576.1Kb)
Date
05/2021
Author
Scholtens, Bert
Witteveen, Emma
Keywords
Environmental risk
Health risk
Credit ratings
Stock markets
Event study
HB Economic Theory
DAS
Metadata
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Abstract
The financial community suggests it increasingly accounts for the environmental and social performance of the companies it invests in. To investigate this claim, we study how stock market participants and credit rating agencies respond to environmental and health controversies with internationally operating companies. Stock returns and rating changes are the most prominent financial signals regarding the appreciation of news by the financial community. The actions of numerous investors who trade on public information determine firm value. Credit rating agencies produce ratings based on private information, in part to support these evaluations. Ratings focus directly on a firm’s default and business risk which itself is increasingly associated with global environmental and health controversies. Financial investors show a timely and significant response to measures of such controversies, but this response is highly generic and is small from an economic point of view. Credit ratings do not immediately respond in a significant way. Thus, markets and raters respond in a different way to the controversies. We conclude that the response of the financial community to global environmental and health controversies is limited. Therefore, the financial community seems unable to discipline the economic agents behind the controversies.
Citation
Scholtens , B & Witteveen , E 2021 , ' Shocks, stocks and ratings : the financial community response to global environmental and health controversies ' , Global Environmental Change , vol. 68 , 102245 . https://doi.org/10.1016/j.gloenvcha.2021.102245
Publication
Global Environmental Change
Status
Peer reviewed
DOI
https://doi.org/10.1016/j.gloenvcha.2021.102245
ISSN
0959-3780
Type
Journal article
Rights
Copyright © 2021 The Author(s). Published by Elsevier Ltd. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/).
Collections
  • University of St Andrews Research
URI
http://hdl.handle.net/10023/21607

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