The intra-industry effect of corporate environmental violation: an exploratory study

Zou, Hua; Zeng, Saixing; Zhang, Xiaoling; Lin, Hong; Shi, Jonathan

doi:10.1016/j.jclepro.2014.09.099

Cited by 23 publications

(19 citation statements)

References 72 publications

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“…However, when fraud in these dimensions is the driver for this success, downsides can be high. Dieselgate illustrates that these scandals damage not only the fraudulent firm(s) but also the reputation of industry peers with financially damaging consequences (Zou, Zeng, Zhang, Lin, & Shi, 2015). Therefore, VW and the German automotive industry serve as a good example that complying with environmental regulations matters and that violating them is costly.…”

Section: Discussionmentioning

confidence: 99%

The contagion effect of environmental violations: The case of Dieselgate in Germany

Bouzzine

Lueg

2020

Bus Strat Env

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We examine how environmental violations affect the stock returns of the violating firm and how these financial implications then spread to industry peers. Volkswagen's diesel emissions scandal (Dieselgate) and the German automotive industry serve as a seminal case for the examination. Research often limits examinations of corporate environmental scandals to the primary event announcement. Yet the Dieselgate scandal exhibits a processual character that requires the examination of multiple events over time. We identify 10 Dieselgate events and employ event study methodology to detect abnormal stock reactions. Based on agency and signaling theory, the results indicate that Dieselgate has harmed the stock returns of Volkswagen and its industry peers substantially. Surprisingly, Volkswagen suffered financial damage only upon the initial event of Dieselgate. Subsequent events had significant effects only on industry peers. These findings contribute comprehensively to the research of environmental misconduct and provide valuable implications for practitioners.

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Section: Discussionmentioning

confidence: 99%

The contagion effect of environmental violations: The case of Dieselgate in Germany

Bouzzine

Lueg

2020

Bus Strat Env

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“…We argue that the relationship between GRI SR and firm performance is influenced by political ties and control for the firm’s ownership (Ownership): state-owned (owned or controlled by central or local government) and non-state-owned firms. It is a dummy variable, if the firm is non-state-owned, the variable is equal to “1”; otherwise it is equal to “0.” Additional firm level controls include environmental sensitivity of the sector (ESS), “1” if the firm belongs to non-environmental sensitive industries, “0” if no (including oil exploration, paper and pulp, chemical and drugs, mining and metallurgy, iron and steel, and textiles) (Zou, Zeng, Zhang, Lin, & Shi, 2015). Finally, because different provinces in China may have different legal environment regulation and degrees of environmental pollution, we control the firm location (FL).…”

Section: Methodsmentioning

confidence: 99%

Does GRI Sustainability Reporting Pay Off? An Empirical Investigation of Publicly Listed Firms in China

et al. 2019

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The Global Reporting Initiative (GRI) guidelines have emerged as an important instrument used by firms to structure the content of sustainability reporting (SR). This development has led to the question of whether the elaboration of GRI SR is beneficial to a firm’s financial performance. In this study, building on signaling theory, we carry out an empirical investigation of the impact of GRI SR on firm profitability and the factors moderating that impact. Drawing from the China Stock Market and Accounting Research (CSMAR), the WIND Economic, and the Chinese Research Data Services Platform (CNRDS) databases, we identified a sample of 122 listed firms with GRI SR in China. We then employed an event study method to compare the firms following GRI SR with a set of matched firms reporting sustainability without following the GRI guidelines. The results show that GRI SR significantly increases firm profitability. Moreover, firms with local political ties reap more benefits from GRI SR, while the moderating effect of central political ties is not significant. Surprisingly, the performance impact of GRI SR is negatively correlated to the firm’s internationalization level.

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“…In 2018, the State Council issued the three-year action plan for winning the Blue Sky Defense Campaign, focusing on strengthening the supervision of regional air quality. As a result of a stricter environmental regulation enforcement, the environmental violations of firms due to poor environmental performance have gradually attracted serious attention from investors and have begun to affect investors’ assessments of corporate risk [ 38 ]. We speculate that the environmental violation risk related to air pollution is higher for firms located in these regions with strict environmental supervision.…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

“…Prior studies have demonstrated that industry characteristics are a critical factor affecting the investors’ attention to firms’ environmental issues. Firms in environmentally sensitive industries have a higher tendency to engage in polluting activities and noncompliance with environmental regulations, and investors are more likely to perceive the environmental risk characteristics of these firms [ 38 ]. In particular, the announcement of new environmental regulations reduces investors’ aspiration to invest in heavily polluting stocks, which eventually leads to a relatively poor stock return performance of heavily polluting firms in a short period [ 11 ].…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

“…Thus, ownership is regarded as a strong political link between firms and government [ 42 ]. Political connection not only brings more advantages to state-owned firms, such as more investment funds, tax incentives, lower financing constraints, and capital cost [ 43 , 44 , 45 , 46 ], but also brings some obstacles to the implementation of environmental supervisions by local governments [ 17 , 38 ]. When local governments implement environmental supervision, the political connection can always protect state-owned firms from punishments due to environmental violations to a great extent.…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

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Air Pollution, Environmental Violation Risk, and the Cost of Debt: Evidence from China

Wang

Zhang

Zhou

2022

IJERPH

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Although a firm’s exposure to air pollution-related risk has become an important factor that creditors cannot ignore in the procedure of lending decision making with the aggravation of air pollution, empirical evidence on whether and how air pollution affects the cost of debt has been relatively scarce. Employing a series of Chinese listed firms from the main board of the Shanghai and Shenzhen Stock Exchanges covering 2014 to 2018, our research responds to this research gap by exploring how air pollution-induced environmental violation risk affects the cost of debt by constructing an assessment system of firms’ environmental violation risk. The results shed light on an issue that firms exposed to higher concentrations of air pollution may suffer a higher environmental violation risk, resulting in a higher debt cost. In addition, a further analysis shows that environmental regulatory pressure and heavily polluting firms enhance the influence of air pollution on the cost of debt, while state-owned firms and firms’ economic contributions weaken the influence of air pollution on the cost of debt. Our research is conducive to highlighting not only the importance of environmental governance for mitigating the cost of debt to the firms exposed to air pollution, but also its importance to creditors exposed to their clients’ environmental violation risk and default risk.

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The intra-industry effect of corporate environmental violation: an exploratory study

Cited by 23 publications

References 72 publications

The contagion effect of environmental violations: The case of Dieselgate in Germany

The contagion effect of environmental violations: The case of Dieselgate in Germany

Does GRI Sustainability Reporting Pay Off? An Empirical Investigation of Publicly Listed Firms in China

Air Pollution, Environmental Violation Risk, and the Cost of Debt: Evidence from China

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