Chinese shareholders’ reaction to the disclosure of environmental violations: a CSR perspective

Abstract

In the past decades, Corporate Social Responsibility (CSR) has attracted increasing attention, with Corporate Environmental Responsibility (CER or Environmental CSR) playing an ever important role. This paper aims to study whether and how Chinese shareholders are sensitive to the disclosure of environmental violations. Specifically, the issue is measured by the performance of the Chinese stock market. In order to answer this question, the authors conduct a two-dimensional "environment-as-a-resource" framework, which assumes that the pressure on stock price after an environmental violation is from both externalities and internalities. The external pressure comes from environmental regulations, media attention, customer sensitivity and so on. The internal pressure is rooted in firm level actions, for example, previous pollution control and previous CSR performance. The paper starts by addressing theories of corporate social responsibility, corporate environmental management and market value management, followed by the advancement of foreign and domestic research. Then, based on the events in the Shanghai and Shenzhen stock exchanges from 2002 to 2014, the authors calculate the events' cumulative abnormal return. The explanatory factors in the regression model include external impacts of time trend and media attention; together with internal impacts of previous pollution situations and CSR performance. Complementing the notion of "environment-as-a-resource", the regression results reveal that, facing an environmental violation, Chinese shareholders react negatively. The negative reaction becomes weaker as time goes by, and is stronger in the years with heavier media environmental attention. Furthermore, some policy suggestions are proposed in light of the current CSR implementations by Chinese companies: 1) Strengthen the government's environmental scrutiny management to help the market punish environmental violators. 2) Encourage environmental accounting and environmental auditing for public companies. 3) Build up a broad environmental information platform comprising of interactions between the government, corporations and media. 4) Cultivate environmental awareness of company managers so it becomes worthy to invest in environment resources and gain better awareness of environmental responsibility.

Socially Responsible Investing as a Competitive Strategy for Trading Companies in Times of Upheaval Amid COVID-19: Evidence from Spain

“…Regarding Question 2, results were similar. Precisely, 59% of the respondents indicated that they had decided not to procure the products and services of firms that did not behave socially responsibly during the crisis, which supports the idea of punishing eco-harmful behaviour (Flammer 2013;Huang et al 2017). Only 23% of those surveyed indicated that the actions of companies during the crisis would not change their consumption habits (see Figure 2).…”

The impact of ownership structure on corporate social responsibility: the moderating role of financial performance

“…In the same way, other authors (Jamali et al , 2008; Huang et al , 2014; Wang et al , 2020; Endrikat et al , 2020) regarded CSR as the integration of social and environmental concerns into firms’ activities and paying attention to stakeholders’ preoccupations. Thus, according to the generic definition set out above, CSR aims to integrate various corporate practices with the concept of social welfare to improve stakeholders’ benefits and promote the sustainable development of society (Branco and Rodriguez, 2006; Huang et al , 2017; Qiu et al , 2021; Javeed and Lefen, 2019; Franco et al , 2020).…”

Stock Market’s Reaction to Self-Disclosure of Environmental Administrative Penalties: an Empirical Study in China

“…According to the efficient market hypothesis, the latest information will be reflected in the stock price, both positive and negative latest information will cause abnormal fluctuations in the stock price. Based on the efficient market hypothesis, researchers used the event study methodology to examine the impact of various adverse environmental events on the stock market, and found that the market will have a negative response to negative environmental events [4,9,15,16]. However, some researchers have come to different conclusions [12,17].…”

“…Some studies found that shareholders' benefits will be negatively affected by accidental events [3][4][5][6][7]. The researchers found that the disclosure of environmental violation events will lower corporate estimated value [5,[8][9][10]. However, some researchers have come to different conclusions [11,12].…”