Free DP Download 14 November 2019 - ACHIEVING A MORE ENVIRONMENTALLY AND SOCIALLY SUSTAINABLE ECONOMY THROUGH MARKET DISCIPLINE
DOES MONEY TALK? Market Discipline through Selloffs and Boycotts
Nick Gantchev, Mariassunta Giannetti, Rachel Li
CEPR DP No. 14098 | 04 November 2019
Analysis of negative news coverage of firms’ environmental and social (E&S) practices reveals that customers and investors can impose their ethical standards on corporate policies. Among the findings of the new CEPR study by Nick Gantchev, Mariassunta Giannetti and Rachel Li:
- Investors sell firms with heightened E&S risk, especially if they are from E&S conscious countries or hold portfolios with high sustainability ratings.
- Heightened E&S risk is associated with a drop in firms' sales in E&S conscious countries.
- The behaviour of E&S conscious investors and customers leads to declines in stock prices, which push firms to improve their E&S policies in the years following negative realisations of E&S risk.
The results of the study indicate that customers and shareholders are able to impose their social preferences on firms, suggesting that market discipline works.