The reputational costs of corporate environmental underperformance: evidence from China

Mosharraf Hossain, Lafang Wang, Jing Yu

Research output: Contribution to journalArticlepeer-review

15 Citations (Scopus)

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.
Original languageEnglish
Pages (from-to)930-948
Number of pages19
JournalBusiness Strategy and the Environment
Volume33
Issue number2
Early online date9 Aug 2023
DOIs
Publication statusPublished - Feb 2024

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