Introduction
Theory and Hypothesis Development
Investor Reaction to Responsible and Irresponsible Corporate Water Actions
The Effects of Past Responsible or Irresponsible Performance
Market reaction to responsible water actions | Market reaction to irresponsible water actions | |
---|---|---|
Past responsible performance (CSR) | Diminishing positive returns (H3) | Insurance effect (H4) |
Past irresponsible performance (CSiR) | Offsetting effect (H5) | Diminishing negative returns (H6) |
Prior Corporate Socially Responsible (CSR) performance
Prior Corporate Socially Irresponsible (CSiR) Performance
Data and Methodology
Sample Construction
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Water usage and savings, including, but not limited to, product- or process-related water efficiency/inefficiency and water saving/depletion.
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Contribution to, or refraining from, water pollution/contamination, like cases of oil spill, toxic/hazardous waste disposal, etc.
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Charity or voluntary actions, with regard to the provision of clean water, cleansing of water bodies, water treatment and recycling, or participation in other water-related issues.
Panel A: Corporate water events by year | ||||||
---|---|---|---|---|---|---|
Year | All events | Responsible events | Irresponsible events | |||
Freq | % | Freq | % | Freq | % | |
2005 | 18 | 5.16 | 10 | 5.95 | 8 | 4.42 |
2006 | 18 | 5.16 | 9 | 5.36 | 9 | 4.97 |
2007 | 30 | 8.60 | 21 | 12.50 | 9 | 4.97 |
2008 | 24 | 6.88 | 14 | 8.33 | 10 | 5.52 |
2009 | 22 | 6.30 | 14 | 8.33 | 8 | 4.42 |
2010 | 40 | 11.46 | 19 | 11.31 | 21 | 11.60 |
2011 | 41 | 11.75 | 14 | 8.33 | 27 | 14.92 |
2012 | 24 | 6.88 | 12 | 7.14 | 12 | 6.63 |
2013 | 19 | 5.44 | 4 | 2.38 | 15 | 8.29 |
2014 | 35 | 10.03 | 19 | 11.31 | 16 | 8.84 |
2015 | 38 | 10.89 | 21 | 12.50 | 17 | 9.39 |
2016 | 25 | 7.16 | 8 | 4.76 | 17 | 9.39 |
2017 | 15 | 4.30 | 3 | 1.79 | 12 | 6.63 |
Total | 349 | 100 | 168 | 100 | 181 | 100 |
Panel B: Corporate water events by 2-digit SIC industry (all events) | |||
---|---|---|---|
2-digit SIC | SIC Industry | Freq | % |
13 | Oil & gas extraction | 73 | 20.92 |
20 | Food & kindred products | 61 | 17.48 |
29 | Petroleum & coal products | 38 | 10.89 |
99 | Non-classifiable establishments | 35 | 10.03 |
28 | Chemical & allied products | 25 | 7.16 |
53 | General merchandise stores | 17 | 4.87 |
73 | Business services | 14 | 4.01 |
49 | Electric, gas, & sanitary services | 14 | 4.01 |
58 | Eating & drinking places | 9 | 2.58 |
36 | Electronic & electrical equipment | 7 | 2.01 |
Others | 56 | 16.05 | |
Total | 349 | 100 |
Dependent Variable
Independent Variables
Prior CSR and CSiR Performance Measures
Control Variables
Responsible events (N = 168) | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Mean | Std. Dev | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | |
1. CAR (− 1,1) | 0.004 | 0.022 | 1 | |||||||||
2. Strength dummy | 0.958 | 0.200 | − 0.095 | 1 | ||||||||
3. Concern dummy | 0.940 | 0.237 | 0.013 | 0.073 | 1 | |||||||
4. ROE | 0.221 | 0.171 | − 0.177* | 0.156* | − 0.022 | 1 | ||||||
5. Leverage | 0.595 | 0.179 | 0.054 | 0.170* | 0.149 | 0.113 | 1 | |||||
6. Size (ln) | 10.72 | 1.163 | − 0.006 | 0.261* | 0.251* | − 0.031 | 0.346* | 1 | ||||
7. Age (ln) | 4.337 | 0.668 | − 0.118 | 0.119 | 0.197* | 0.135 | 0.336* | 0.301* | 1 | |||
8. Tobin’s Q | 2.311 | 1.177 | − 0.089 | 0.049 | − 0.188* | 0.450* | − 0.452* | − 0.405* | − 0.193* | 1 | ||
9. No. of Analysts(ln) | 3.082 | 0.339 | 0.040 | 0.164* | − 0.055 | − 0.187* | − 0.258* | 0.004 | − 0.349* | − 0.042 | 1 | |
10. Recom Change | 0.113 | 0.815 | − 0.023 | − 0.044 | 0.066 | − 0.082 | 0.049 | 0.041 | 0.073 | 0.012 | 0.042 | 1 |
Irresponsible events (N = 181) | ||||||||||||
1. CAR (− 1,1) | − 0.006 | 0.024 | 1 | |||||||||
2. Strength dummy | 0.873 | 0.334 | 0.248* | 1 | ||||||||
3. Concern dummy | 0.867 | 0.340 | 0.269* | 0.487* | 1 | |||||||
4. ROE | 0.134 | 0.357 | 0.070 | 0.313* | 0.147* | 1 | ||||||
5. Leverage | 0.560 | 0.146 | − 0.024 | 0.014 | − 0.103 | − 0.256* | 1 | |||||
6. Size (ln) | 10.39 | 1.561 | 0.150* | 0.528* | 0.456* | 0.287* | − 0.045 | 1 | ||||
7. Age (ln) | 4.303 | 0.637 | 0.139 | 0.393* | 0.380* | 0.134 | − 0.047 | 0.610* | 1 | |||
8. Tobin’s Q | 2.012 | 0.942 | 0.024 | 0.008 | − 0.097 | − 0.045 | − 0.030 | − 0.133 | − 0.133 | 1 | ||
9. No. of Analysts(ln) | 3.137 | 0.340 | − 0.001 | 0.155* | − 0.066 | 0.031 | − 0.231* | − 0.157* | − 0.236* | − 0.002 | 1 | |
10. Recom Change | 0.083 | 0.836 | 0.061 | 0.098 | 0.117 | − 0.066 | 0.169* | − 0.068 | − 0.033 | 0.137 | 0.013 | 1 |
Regression Model
Results and Findings
Stock Market Reaction to Water Events
Responsible events | Irresponsible events | |||||||
---|---|---|---|---|---|---|---|---|
N | Mean | P-value | Std. Dev | N | Mean | P-Value | Std. Dev | |
CAR (− 1,0) | 168 | 0.291* | 0.067 | 0.020 | 181 | − 0.416*** | 0.004 | 0.019 |
CAR (− 1,1) | 168 | 0.352** | 0.037 | 0.022 | 181 | − 0.613*** | 0.001 | 0.024 |
CAR (− 2,2) | 168 | 0.496** | 0.049 | 0.032 | 181 | − 0.567** | 0.028 | 0.034 |
Effects of CSR and CSiR Performance on Market Reaction
Responsible events | Irresponsible events | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
N | Mean | Diff. of Mean | Median | Diff of Median | Std. Dev | N | Mean | Diff. of Mean | Median | Diff of Median | Std. Dev | ||
Past responsible performance (CSR) | High Strength | 161 | 0.31* (0.057) | − 1.03 (0.219) | 0.26** (0.040) | − 0.60 (0.247) | 0.020 | 158 | − 0.38** (0.042) | 1.81*** (0.001) | − 0.21* (0.067) | 1.56*** (0.004) | 0.023 |
Low Strength | 7 | 1.34 (0.442) | 0.86 (0.453) | 0.043 | 23 | − 2.20*** (0.001) | − 1.76*** (0.003) | 0.026 | |||||
Past irresponsible performance (CSiR) | High Concern | 158 | 0.36** (0.033) | 0.12 (0.868) | 0.29** (0.013) | 0.30 (0.514) | 0.021 | 157 | − 0.36** (0.050) | 1.93*** (0.000) | − 0.22** (0.038) | 2.23* (0.085) | 0.023 |
Low Concern | 10 | 0.24 (0.820) | − 0.01 (0.754) | 0.033 | 24 | − 2.29*** (0.001) | − 2.45** (0.023) | 0.029 |
Responsible events | Irresponsible events | |||||
---|---|---|---|---|---|---|
Model 1 | Model 2 | Model 3 | Model 1 | Model 2 | Model 3 | |
High strength (dummy) | − 0.019*** (0.003) | − 0.019*** (0.006) | − 0.016** (0.044) | 0.016** (0.031) | 0.016** (0.024) | 0.019*** (0.002) |
High concern (dummy) | 0.014 (0.352) | 0.014 (0.339) | 0.025** (0.048) | 0.015*** (0.004) | 0.015*** (0.001) | 0.009* (0.051) |
ROE | − 0.004 (0.745) | − 0.004 (0.751) | − 0.012 (0.619) | − 0.005 (0.507) | − 0.005 (0.513) | − 0.017** (0.041) |
Leverage | 0.020 (0.184) | 0.021 (0.198) | 0.019 (0.402) | − 0.005 (0.837) | − 0.005 (0.787) | 0.012 (0.518) |
Size | 0.002 (0.627) | 0.002 (0.634) | 0.005 (0.265) | − 0.002 (0.447) | − 0.002 (0.428) | 0.000 (0.857) |
Age | − 0.006 (0.115) | − 0.006 (0.120) | − 0.008** (0.038) | 0.002 (0.570) | 0.002 (0.567) | 0.002 (0.690) |
Tobin’s Q | 0.001 (0.743) | 0.001 (0.739) | 0.002 (0.606) | − 0.002 (0.527) | − 0.002 (0.674) | − 0.001 (0.813) |
No. of Analysts | 0.007 (0.226) | 0.007 (0.265) | 0.011 (0.137) | − 0.008* (0.069) | − 0.009* (0.083) | − 0.005 (0.514) |
Recom Change | − 0.000 (0.790) | − 0.000 (0.782) | − 0.001 (0.483) | 0.001 (0.570) | 0.001 (0.602) | 0.001 (0.702) |
Time trend | ✓ | ✓ | ✓ | ✓ | ||
Industry effects | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ |
Time trend and industry effects | ✓ | ✓ | ||||
Obs | 168 | 168 | 168 | 181 | 181 | 181 |
R2 | 0.335 | 0.335 | 0.502 | 0.185 | 0.185 | 0.253 |
Robustness
Responsible events | Irresponsible events | |||||
---|---|---|---|---|---|---|
Model 1: net score | Model 2: only strength | Model 3: only concern | Model 1: net score | Model 2: only strength | Model 3: only concern | |
High strength (dummy) | − 0.013 (0.117) | 0.022*** (0.001) | ||||
High concern (dummy) | 0.025* (0.057) | 0.014** (0.014) | ||||
Net score dummy | 0.001 (0.780) | 0.005** (0.032) | ||||
ROE | 0.007 (0.660) | 0.001 (0.975) | − 0.001 (0.961) | − 0.017** (0.048) | − 0.019** (0.026) | − 0.015* (0.063) |
Leverage | − 0.014 (0.164) | 0.002 (0.953) | − 0.002 (0.925) | 0.023 (0.323) | 0.010 (0.597) | 0.023 (0.274) |
Size | 0.005 (0.252) | 0.005 (0.254) | 0.004 (0.278) | 0.006*** (0.000) | 0.001 (0.422) | 0.004** (0.048) |
Age | − 0.010* (0.056) | − 0.009** (0.041) | − 0.009** (0.046) | 0.003 (0.420) | 0.002 (0.666) | 0.002 (0.559) |
Tobin’s Q | − 0.000 (0.969) | 0.001 (0.833) | 0.000 (0.902) | − 0.003 (0.614) | − 0.002 (0.775) | − 0.002 (0.685) |
No. of Analysts | 0.007 (0.307) | 0.011 (0.184) | 0.006 (0.363) | 0.006 (0.563) | − 0.004 (0.688) | 0.002 (0.858) |
Recom Change | − 0.001 (0.741) | − 0.001 (0.681) | − 0.001 (0.580) | 0.001 (0.731) | 0.001 (0.683) | 0.001 (0.772) |
Time trend | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ |
Industry effects | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ |
Time trend and industry effects | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ |
Obs | 168 | 168 | 168 | 181 | 181 | 181 |
R2 | 0.480 | 0.483 | 0.497 | 0.224 | 0.247 | 0.233 |
Results Using Trucost Water Performance Measures
Responsible events | Irresponsible events | |||||
---|---|---|---|---|---|---|
Model 1 | Model 2 | Model 3 | Model 1 | Model 2 | Model 3 | |
Water performance measure | − 0.007 (0.278) | − 0.007 (0.293) | − 0.011** (0.027) | 0.009** (0.010) | 0.009*** (0.006) | 0.009** (0.016) |
ROE | 0.009 (0.501) | 0.009 (0.530) | 0.018 (0.359) | − 0.007 (0.376) | − 0.007 (0.418) | − 0.018*** (0.008) |
Leverage | 0.005 (0.716) | 0.004 (0.771) | − 0.021* (0.098) | − 0.002 (0.938) | − 0.002 (0.939) | 0.024 (0.260) |
Size | 0.003 (0.506) | 0.003 (0.506) | 0.005 (0.273) | 0.003** (0.051) | 0.003* (0.068) | 0.005*** (0.000) |
Age | − 0.009* (0.050) | − 0.009* (0.055) | − 0.012** (0.025) | 0.003 (0.422) | 0.003 (0.423) | 0.002 (0.675) |
Tobin’s Q | − 0.001 (0.769) | − 0.001 (0.797) | − 0.001 (0.809) | − 0.003 (0.542) | − 0.003 (0.569) | − 0.004 (0.532) |
No. of Analysts | 0.004 (0.502) | 0.003 (0.712) | 0.007 (0.300) | − 0.001 (0.905) | 0.000 (0.965) | 0.006 (0.511) |
Recom Change | 0.000 (0.863) | 0.000 (0.883) | − 0.001 (0.513) | 0.001 (0.669) | 0.001 (0.679) | 0.001 (0.736) |
Time trend | ✓ | ✓ | ✓ | ✓ | ||
Industry effects | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ |
Time trend and industry effects | ✓ | ✓ | ||||
Obs | 149 | 149 | 149 | 162 | 162 | 162 |
R2 | 0.220 | 0.221 | 0.414 | 0.133 | 0.134 | 0.228 |