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 :

July 23 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. We also find that these firms’ sales in E&S conscious 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 investors’ divestitures and customers’ reduced demand can trigger changes in corporate policies and decrease future negative E&S incidents.

Authors

Real name:
Rachel Li