Abstract:-

Do stock markets penalise environment unfriendly behaviour, in particular, ‘environmental backsliding’? We answer these two questions through an event study of Indian firms in three polluting industries—paper and pulp, cement and iron and steel. Using data on environmental ratings from the Green Rating Project (GRP) and along lines of earlier research (Gupta and Goldar 2005), we find the market generally penalises weak environmental performance. In particular, backsliding firms—those whose environmental performance deteriorated or continued to be poor over two rounds of GRP, experienced significant negative abnormal returns. We explore the potential reasons for this. Finally, we argue the existing literature does not correct for the potential cross-sectional increase in the variance of stock returns on the event date and hence is likely to falsely reject the null hypothesis. We correct for this shortcoming by using a modified test statistic.
(with B.N. Goldar , Shubham Dang and Omer Baris)