How Does the Stock Market React to Corporate Environmental News?

The environmental decisions of corporations can have a huge impact on both the environment and a company’s value. This paper finds that the stock market reacts negatively to news about the environmental behavior of firms. A 2009 Newsweek study on the “greenness” of companies is used in the study. The event study methodology is used with stock prices to measure the stock market reaction by creating Cumulative Abnormal Returns. Results also show that there is no relationship between Green Score and stock returns of ranked companies, but the unanticipated portions of the rankings do have a significant negative effect on rankings. The average abnormal returns of all the companies are also significantly negative suggesting that investors react adversely to “green” news.