The Impact Of Environmental Information Disclosure On Stock Market Reaction And Financial Performance

In China’s environmental laws and regulations,laws and regulations concerning the disclosure of corporate environmental information are still not systematic.They are only scattered in The Law of Environmental Protection(1989),The Law of Environmental Impact Assessment(2003),The Law of Cleaner Production Promotion(2003)etc.Administrative regulations,such as the State Environmental Protection Administration’s Announcement on Disclosure of Corporate Environmental Information(2003)make simple provisions on certain companies that must disclose environmental information voluntarily.However,this temporary announcement is not compulsive,and the implementation of the announcement is poor.With the implementation of the New Environmental Protection Act on January 1,2015,the situation of China’s imperfect environmental protection legal system was about to change.At the same time,the environmental pollution incidents of listed companies in our country emerged in an endless stream.The bio-pharmaceutical industry and the chemical industry had raised widespread concern among public opinion and had seriously warned these heavily polluting enterprises.For heavily polluting companies,what kind of economical impact will environmental information disclosure bring?There are no clear answers among existing studies.This article takes the representative of the heavily polluting company Lukang Pharmaceutical as a case,and explores the impact of heavy pollution companies’ environmental information disclosure on their stock market reactions and financial performance.This article first elaborates related theories and literature,including the theory of effective market,the theory of signal transmission,the theory of social responsibility and the theory of legality,etc.,the system and status of disclosure of environmental information of listed companies,the motivation of disclosure of environmental information by enterprises.The literature on the system and status of environmental information disclosure of enterprises,the causes of the enterprises’ environmental information disclosure,and the economical impact of the enterprises’ environmental information disclosure are reviewed.Secondly,it introduces the overview of the case.In the form of a combination of forms and textual descriptions,it shows the environmental pollution incidents that the company experienced from the end of 2014 to the end of 2016,the penalties it received due to environment pollution,the measures it took to solve environmental problems,and the environmental information it disclosed.This paper discusses the impact of environmental information disclosure from two aspects of stock market response and financial performance.First,it studies the impact of environmental information disclosure on stock market reaction.We select an event of negative environmental information disclosure and an event of positive environmental information disclosure as two examples from the table.Using event research method,we define the December 26,2014 and April 28,2016 respectively as two days of the event,and try to figure out the performance of the stock price in the short term and in the long term during the period of the event It is found that the stock market has a clear reaction to the disclosure of negative environmental information of the company in the short term,but the reaction level is not as good as the date of the exposure of environmental violations;In the long term,the stock market shows no apparent reaction.However,the stock market has a weak ability to respond to positive environmental information disclosure of the company either in the short term and in the long term.Then it studies the impact of environmental information disclosure during 2014 and 2016 on the company’s financial performance.The study finds that disclosure of negative environmental information will affect the solvency of the listed company,but this effect is weak,and the lasting impact time is only one quarter.Continuous positive environmental information disclosure can enhance the company’s profitability and the debt paying ability.But It doesn’t obviously improve the company’s operation capacity.Then according to the conclusions,this article puts forward relevant policy recommendations,calling for further improvement of the listed company’s environmental information disclosure system,encouraging the listed companies to disclose their environmental information voluntarily,and accelerating the construction of China’s eco-friendly stock market system.etc.