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 :

December 21 2020
SSRN Share

Keywords

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

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.

As a consequence of investors’ reactions, firms with more E&S-motivated investors experience temporary declines in valuations and subsequently improve their E&S policies. Sales in E&S-conscious countries also decrease following negative realizations of E&S risk, but firms do not appear to consistently improve their E&S policies to recover market share. Our results indicate that investors’ divestitures can trigger changes in corporate policies and reduce negative E&S incidents.

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Authors

Real name:
Rachel Li