Free DP Download 14 November 2019 - ACHIEVING A MORE ENVIRONMENTALLY AND SOCIALLY SUSTAINABLE ECONOMY THROUGH MARKET DISCIPLINE

Thursday, November 14, 2019

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.


Download for free