Investors' Reaction to Environmental Performance: A Global Perspective of the Newsweek's 'Green Rankings'

We use event study analysis to determine whether the release of Newsweek’s “Global 100 Ranking†is relevant for the market. We look at one- and two-day event windows to check two possible reactions of the market: changes in the value of an equal-weight portfolio, and changes in the relative price of the stocks. The results show that the market reacted to the “Global 100 Ranking†by changing the relative price of the stocks, but not the value of the portfolio. Specifically, getting one position closer to the top of Newsweek’s “Global 100 Green Rankings†increases the value of an average firm in the list by eleven million dollars. There is also some evidence of a stronger reaction of non-US-traded stocks compared to US-traded ones. Non-heavy sector stocks display a more robust reaction to than heavy sector stocks. We find that investors in US-traded stocks are more interested on past environmental performance than on managerial quality, while the opposite is true for investors in non-US-traded stocks. Results are robust to alternative model specifications