KCG Lunch-time Seminar

Companies' Stock Market Response to Industrial Disasters — Elisa Navarra

23 Oct 2020

Institut für Weltwirtschaft


Elisa Navarra (Université Libre de Bruxelles – ECARES)


With the escalation of labor rights' violations and tangible environmental challenges, society is paying increasing attention to the dramatic consequences of firms' malpractices. Using a novel dataset on 720 industrial disasters worldwide over the period 1990-2019, I first examine media coverage of these accidents and identify the companies allegedly involved in them. Even though disasters in developing countries are much more frequent and deadly, they receive much less worldwide media attention than disasters that occur in developed countries. I then exploit industrial accidents as exogenous shocks to society's awareness of firms' malpractices to study their effects on stock market returns. I estimate an average drop in shareholders' wealth of 1.70% on the day after the disaster and of 4.39% over the week after. Consistently with the bias in media coverage, the loss is 10 times larger when disasters occur in developed countries. Results suggest that, despite the alarming number of industrial disasters, there is no sufficient market-based incentive to change behavior for firms that exploit lax regulation in developing countries, as they do not suffer reputation losses for their malpractices in these countries.


Elisa Navarra (Université Libre de Bruxelles – ECARES)


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