The reputational costs of corporate environmental underperformance: evidence from China

Abstract

This study evaluates the relative importance of regulative and reputational pressures on corporate environmental performance by exploiting a novel research setting in China, where the financial penalties for corporate environmental wrongdoing are small. Despite the small monetary penalties, we still document a surprisingly strong negative stock price reaction to the news of corporate environmental violations. Additionally, we show that the negative stock market reaction weakens in firms with strong voluntary environmental commitment. But the effect of voluntary environmental commitment is less pronounced in state‐ or foreign‐owned firms. Our study yields important managerial implications: our findings reveal considerable reputational losses associated with environmental misconducts and demonstrate the benefit of voluntary environmental commitment in upholding corporate reputation and helping firms recover during unfavorable environmental crises.

Reward or punishment? The impact of heterogeneous environmental regulatory intervention on the firm market value

“…Current event studies have confirmed the negative impact of governmental penalties for corporate environmental irresponsibility on the firm market value (Bouzzine, 2021;Hossain et al, 2023). Governmental penalties have been argued to undermine firm legitimacy (Shevchenko, 2021).…”

ESG rating divergence and corporate green innovation

“…Given the availability of data and following Christensen et al (2022) and Serafeim and Yoon (2023), we measure ESG rating divergence based on three prominent rating agencies including Hexun, RKS, and Bloomberg. These datasets have been widely used in top journals addressing Chinese sustainability (see e.g., Chen & Xie, 2022; He et al, 2022; Hossain et al, 2023; Li W. et al, 2023; Wang, Chen, et al, 2023). Consistent with the findings of Berg et al (2022), these ratings differ significantly in terms of indicator scope, weight allocation, and measurement method, which may lead to different rating outcomes for the same company.…”

The purpose of the company beyond its position in the market: The new agent of social development

“…This frame of reference is evidenced in examples such as the search for a circular supply chain (Härri et al, 2023), innovation towards a sustainable industry (Narkhede et al, 2023), the application of this modality in companies with different size (small, medium and large) (Madrid-Guijarro & Duréndez, 2023), and the reformulation of types of company according to their integration to these objectives (Riso et al, 2023). Said transversality is also evidenced in CSR actions, which are visible in the regulation of environmental impact (Panda & Kanti, 2023;Wulansari & Adhariani, 2023), the attention in favor of the surrounding community (Patil & Vhavale, 2022), the influence of companies in the economic development of their regions (Zhakupov et al, 2022), and the participation of the government itself to promote better practices (Hossain et al, 2023). All these proposals arise in a global scenario in which companies with profit-oriented purposes are questioned, and others are raised in which participation oriented towards society and the environment is promoted.…”