Industry effects of corporate environmental and social scandals: Evidence from China

Zhenshu Wu; Rachel Pownall; Yi Cheng Shih; Yao Wang

doi:10.1016/j.irfa.2024.103504

Industry effects of corporate environmental and social scandals: Evidence from China

Zhenshu Wu^*, Rachel Pownall, Yi Cheng Shih, Yao Wang

^*Corresponding author for this work

Research output: Contribution to journal › Article › Academic › peer-review

Abstract

This study employs novel corporate environmental, social, and governance profiles to investigate the industry effects of environmental and social (ES) scandals in China. The findings reveal a notable decrease in stock prices for rival firms during scandal announcements. Further, we document a significant, positive correlation between rivals' ES performance and the abnormal returns over a five-day period surrounding the scandals. This correlation is more pronounced in rivals that disclose ES information. Additionally, relative to high-performing rivals, those with weaker ES performance significantly enhance their ES performance in the following year, driven by the perceived ES value in industry scandals. The findings also underscore the influence of state ownership, external governance environment, and industry competition on the spillover effects of ES scandals via risk channels.

Original language	English
Article number	103504
Journal	International Review of Financial Analysis
Volume	95
DOIs	https://doi.org/10.1016/j.irfa.2024.103504
Publication status	Published - 1 Oct 2024

JEL classifications

g14 - "Information and Market Efficiency; Event Studies"
g32 - "Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill"
q01 - Sustainable Development

Keywords

China
ES scandal
ESG
Event study
Industry effect

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10.1016/j.irfa.2024.103504Licence: CC BY

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@article{715eec75f43446a6ae50ff5ee8106273,

title = "Industry effects of corporate environmental and social scandals: Evidence from China",

abstract = "This study employs novel corporate environmental, social, and governance profiles to investigate the industry effects of environmental and social (ES) scandals in China. The findings reveal a notable decrease in stock prices for rival firms during scandal announcements. Further, we document a significant, positive correlation between rivals' ES performance and the abnormal returns over a five-day period surrounding the scandals. This correlation is more pronounced in rivals that disclose ES information. Additionally, relative to high-performing rivals, those with weaker ES performance significantly enhance their ES performance in the following year, driven by the perceived ES value in industry scandals. The findings also underscore the influence of state ownership, external governance environment, and industry competition on the spillover effects of ES scandals via risk channels.",

keywords = "China, ES scandal, ESG, Event study, Industry effect",

author = "Zhenshu Wu and Rachel Pownall and Shih, {Yi Cheng} and Yao Wang",

note = "The authors do not have permission to share data.",

year = "2024",

month = oct,

day = "1",

doi = "10.1016/j.irfa.2024.103504",

language = "English",

volume = "95",

journal = "International Review of Financial Analysis",

issn = "1057-5219",

publisher = "Elsevier Inc.",

}

TY - JOUR

T1 - Industry effects of corporate environmental and social scandals

T2 - Evidence from China

AU - Wu, Zhenshu

AU - Pownall, Rachel

AU - Shih, Yi Cheng

AU - Wang, Yao

N1 - The authors do not have permission to share data.

PY - 2024/10/1

Y1 - 2024/10/1

N2 - This study employs novel corporate environmental, social, and governance profiles to investigate the industry effects of environmental and social (ES) scandals in China. The findings reveal a notable decrease in stock prices for rival firms during scandal announcements. Further, we document a significant, positive correlation between rivals' ES performance and the abnormal returns over a five-day period surrounding the scandals. This correlation is more pronounced in rivals that disclose ES information. Additionally, relative to high-performing rivals, those with weaker ES performance significantly enhance their ES performance in the following year, driven by the perceived ES value in industry scandals. The findings also underscore the influence of state ownership, external governance environment, and industry competition on the spillover effects of ES scandals via risk channels.

AB - This study employs novel corporate environmental, social, and governance profiles to investigate the industry effects of environmental and social (ES) scandals in China. The findings reveal a notable decrease in stock prices for rival firms during scandal announcements. Further, we document a significant, positive correlation between rivals' ES performance and the abnormal returns over a five-day period surrounding the scandals. This correlation is more pronounced in rivals that disclose ES information. Additionally, relative to high-performing rivals, those with weaker ES performance significantly enhance their ES performance in the following year, driven by the perceived ES value in industry scandals. The findings also underscore the influence of state ownership, external governance environment, and industry competition on the spillover effects of ES scandals via risk channels.

KW - China

KW - ES scandal

KW - ESG

KW - Event study

KW - Industry effect

U2 - 10.1016/j.irfa.2024.103504

DO - 10.1016/j.irfa.2024.103504

M3 - Article

SN - 1057-5219

VL - 95

JO - International Review of Financial Analysis

JF - International Review of Financial Analysis

M1 - 103504

ER -

Industry effects of corporate environmental and social scandals: Evidence from China

Abstract

JEL classifications

Keywords

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