Shareholder reaction to corporate eco-harmful behaviour: a cross-country comparison between Germany and China

Abstract: In this study, the difference between shareholder reactions to eco-harmful behaviour by firms in China and Germany are being researched. Previous research has focused on shareholder reaction in developed countries, especially the US. What remains unknown is whether shareholders in developing countries have adopted the same norms concerning the environment as shareholders in developed countries. Institutional theory, legitimacy theory and desensitization theory are examined in this study. An event study was conducted with an [-1,1] and [-1,3] event window surrounding the announcement of eco-harmful behaviour by firms. Events were drawn from relevant news articles and environmental databases. In total 43 events have been discovered over the years 2007 to 2015. Overall, results indicate that the decrease in share prices is not significantly different from zero. However, when comparing China and Germany, evidence is found that Chinese firms are punished more severely than German firms when corporations harm the environment. Contrary to expectations, it can be concluded that the institutionalization of environmental norms has taken place in China, either through internal or global pressures.