Title

Does Money Talk? Market Discipline through Selloffs and Boycotts

Publication Date

6-24-2019

Abstract

Using a novel dataset of negative news coverage of the environmental and social (E&S) practices of firms around the world, we show that customers and investors can provide market discipline and impose their ethical standards on firm policies. Investors sell firms with heightened E&S risk, especially if they are from E&S conscious countries. Similarly, heightened E&S risk is associated with a drop in firms’ sales in E&S conscious countries. This behavior of E&S conscious investors and customers leads to significant declines in stock prices, which push firms to improve their E&S policies in the years following negative realizations of E&S risk. Overall, our results indicate that customers and shareholders are able to impose their social preferences on firms, suggesting that market discipline works.

Document Type

Article

Keywords

Corporate social responsibility; Institutional investors; Culture; Environment; Corporate governance

DOI

10.2139/ssrn.3409455

Source

SMU Cox: Finance (Topic)

Language

English

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