Do Stock Markets Penalise Environment-Unfriendly Behaviour? Evidence from India

Centre for Development Economics Working Paper No. 116

28 Pages Posted: 15 May 2003

See all articles by Shreekant Gupta

Shreekant Gupta

University of Delhi - Delhi School of Economics

Bishwanath Goldar

University of Delhi - Institute of Economic Growth (IEG)

Date Written: March 2003

Abstract

A growing body of research points to the fact that capital markets react to environmental news and thus create incentives for pollution control in both developed and emerging market economies. In this paper we conduct an event study to examine the impact of environmental rating of large pulp and paper, automobile and chlor alkali firms in India on their stock prices. We find that the market generally penalizes environmentally unfriendly behaviour in that announcement of weak environmental performance by firms leads to negative abnormal returns of up to 43 percent. A positive correlation is found between abnormal returns to a firm's stock and the level of its environmental performance. These findings should be viewed as further evidence of the important role that capital markets could play in environmental management, particularly in developing countries where environmental monitoring and enforcement are weak.

Keywords: green rating, capital market, environmental management, event study

JEL Classification: Q25, G14, L73

Suggested Citation

Gupta, Shreekant and Goldar, Bishwanath, Do Stock Markets Penalise Environment-Unfriendly Behaviour? Evidence from India (March 2003). Centre for Development Economics Working Paper No. 116, Available at SSRN: https://ssrn.com/abstract=394621 or http://dx.doi.org/10.2139/ssrn.394621

Shreekant Gupta (Contact Author)

University of Delhi - Delhi School of Economics ( email )

University Enclave
Delhi-110007
India
+91 11 27667005 (Phone)
+91 11 27667159 (Fax)

Bishwanath Goldar

University of Delhi - Institute of Economic Growth (IEG) ( email )

University Enclave
Delhi-110007
India
91-11-27667288 (Phone)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
347
Abstract Views
2,598
rank
103,079
PlumX Metrics