Does Money Talk? Market Discipline through Selloffs and Boycotts

Does Money Talk? Market Discipline through Selloffs and Boycotts

Nickolay Gantchev, Mariassunta Giannetti, Rachel Li

Series number :

Serial Number: 
634/2019

Date posted :

October 16 2019

Last revised :

June 16 2020
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Keywords

  • Corporate Social Responsibility • 
  • institutional investors • 
  • culture • 
  • Environment • 
  • Corporate governance

Can market discipline affect corporate environmental and social (E&S) policies?  Using novel international data on negative news coverage of corporate E&S risks, we show that E&S-conscious investors divest firms with heightened E&S risk. We also find that these firms’ sales in E&Sconscious countries decrease.

As a consequence of investors’ and customers’ reactions, firms with more E&S motivated investors and customers experience temporary declines in valuations and subsequently improve their E&S policies. Our results indicate that market discipline may be effective in triggering changes in corporate policies and reducing future negative E&S incidents.

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Authors

Real name:
Rachel Li