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 :

September 23 2021
SSRN Share

Keywords

  • Corporate Social Responsibility • 
  • Price Informativeness • 
  • Real effects of financial markets • 
  • institutional investors • 
  • Sustainability • 
  • Corporate governance • 
  • culture

Can market discipline affect corporate environmental and social (E&S) policies? Using international data on corporate E&S news, we show that negative coverage of firms’ E&S policies affects negatively E&S-conscious investors’ demand for stocks.

As a consequence, firms with more E&S-motivated investors experience larger temporary declines in valuations and subsequently improve their E&S policies. Such improvements are concentrated among firms with more informative stock prices and are not due to investor engagements, suggesting that firms learn about shareholders’ preferences from stock prices. Sales in E&S-conscious countries also decrease following negative E&S risk, but are not consistently associated with improvements in E&S policies.

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Authors

Real name:
Rachel Li