Location matters: Valuing firm‐specific nonmarket risk in the global mining industry

Abstract

Research summary: Using collective action and social movement theory, we investigate the potential incentives and ability of stakeholders to engage in collective action that can increase firm-specific nonmarket risk of mining companies. We argue that proximity to the nearest environmentally sensitive water source increases the probability that local stakeholders will take collective actions that impose material costs on the focal mine. We hypothesize that stock markets recognize this nonmarket risk and apply a discount on announcements related to mines located near such areas, and that these risks are moderated by the type of mineral, the nature of the water source, and the strength of host country institutions. Using a unique data set and an event study method, we find support for most of our arguments. Managerial summary: We argue that mines located near environmentally sensitive water sources are subject to nonmarket risks arising from the potential collective actions of local stakeholders and their allies. Stakeholder mobilization can impose material costs on a mine in the form of delays, regulatory hurdles, and

Defining and deterring corporate social irresponsibility: embracing the institutional complexity of international business

“…Increasingly, social regulation has also been shown to be enacted through the ability of stakeholder groups to take collective action (Oh et al, 2013(Oh et al, /2020. In contrast to more diffuse social regulatory mechanisms, activist social movements may also exert significant regulatory influence on MNEs depending on stakeholders' ability to organize and mobilize their communities (King, 2008;Oh et al, 2020). Social movements and the strategic behavior of organized activist groups take place outside of the boundaries of formal, regulatory institutional structures (although they may also be required to give legitimacy to activist actions -for more, see Oh et al, 2020).…”

“…Typically, intermediaries between the organization and its institutional environment, such as non-governmental organizations (NGOs) (Gereffi et al, 2001), consulting firms (Brès & Gond, 2014), or expert groups (Ghafran & O'Sullivan 2013) can assist MNEs in adequately complying with strong institutional rules and norms (Gereffi et al, 2001) or place regulatory influence on MNEs when irresponsible behaviour is disclosed (Oh et al, 2020). Thus, intermediaries of different kinds, and with different roles, are understood within the broader management literature as ubiquitous to the process of strategically managing institutional complexity (Eberlein et al, 2014).…”

“…Such actions can reduce the environmental risk posed by the entry of these firms in certain regions and is particularly effective in the presence of formal institutional support (c.f. Oh et al, 2020).…”

“…From a social regulation perspective, CSI is penalized and deterred as a consequence of the disapproval and sanctions evoked by non-governmental stakeholders, that may ultimately lead to diffuse alterations in stakeholders' market and non-market behavior (Barnett et al, 2020;Kölbel et al, 2017;Oh, 2019). Alternately, social forms of business regulation may be enacted through organized, activist movements that are designed to reduce the negative externalities of MNE behavior (McDonnell and Werner, 2016;Oh et al, 2013;Oh et al, 2020). This is because stakeholder perceptions of CSI can translate into critical damages to reputation-based firm-specific advantages, followed by reduced profits and market share (Sweetin et al, 2013), declines in stock market performance (Ertimur et al, 2012;Oh et al, 2020) and may even result in MNE divestment from the international markets where CSI has MBR 29,3 emerged (Wang and Li, 2019).…”

Environmental sustainability disclosures in annual reports of mining companies listed on the Australian Stock Exchange (ASX)

“…Stakeholder theory posits two views: i) moral view, suggesting that those impacted by an organisation's operations have a right to be informed and to demand certain standards of performance; ii) strategic view, recognising that stakeholders can provide benefits to the organisation, such as legitimisation and social license to operate, risk management, and learning ( Brower & Mahajan, 2013 ; Herremans et al., 2016 ). Informing stakeholders of values, status quo, actions, and plans related to companies' commitments towards environmental protection initiatives and sustainability are crucial for beneficial relationships ( Oh et al., 2020 ). It forms part of an attempt to articulate the many ways in which companies are responding to societal and community expectations ( Franks et al., 2014 ).…”