The Empirical Study On Market Reaction To Environmental Violation Disclosure Of Listed Companies

With China’s rapid economic development and the rising of people’squality of life, the public pays an increasing attention on theenvironmental protection. With the increasing awareness ofenvironmental protection, investors in the capital market are starting tofocus on the environmental issues of companies. In recent years, theMinistry of Environmental Protection has paid attention on listedcompanies. Therefore, the environmental performance of the enterprisesgradually influences the investment decisions of investors. So this articleaims to explore the reaction of the capital market to the illegalinformation disclosure of listed companies.The paper first reviews the theories of disclosure of environmentalinformation from organizational legitimacy theory and stakeholder theory.Organizational legitimacy theory is analyzed from four intentions ofenterprises. Stakeholder theory is analyzed from information asymmetrybetween stakeholders and managers of enterprises. And then the paperreviews the literature of domestic and international environmentalinformation disclosure in recent years and has a summary of the study from domestic and foreign scholars.In this paper, the event study methodology is adopted to test thestock reaction to the environmental violation disclosure. This paperselects the sample of environmental violation disclosure from2007to thefirst half of2012for the study. All these samples are related to listedcompanies. The paper explores the market reaction and its impact factors.The results show that negative market reaction could be observed afterthe disclosure of environmental violation events, but the reaction islagging behind. In addition, listed companies with water pollution or withthe clarification letter experienced significant drops in the stock market.When the subsidiaries of listed companies happened environmentalviolations, the stock market had a positive reaction. On the basis of theempirical results, this paper suggests to strengthen the regulatory form ofenvironmental disclosure, improve the cooperation between media andsecurities regulatory commission and increase fines.