Pollution and corporate valuation: evidence from China

Chunyang Wang, Haiyang Zhang, Liping Lu*, Xirui Wang, Ziyu Song

*Corresponding author for this work

Research output: Contribution to JournalArticleAcademicpeer-review


Environmental pollution brings severe challenges in the context of a high growing economy of China. Pollution events bring serious ecological cost to the environment, direct costs from sanction, and reputational damage to the listed firms. We study the market reaction to 145 pollution events in China during Jan 2008 and Feb 2015. We find that the 2-day cumulative abnormal returns (CARs) of pollution events are significantly negative, which shows the disciplining effect of the stock market on the listed firms. In addition, pollution events with sanctions have lower CARs than otherwise, which are heterogeneous among different sanction types such as shutting down, fines and rectification. Finally, water pollution has lower CARs than other pollution types. We find that direct economic loss is an important reason for the negative market reactions to pollution events.

Original languageEnglish
Pages (from-to)3516-3530
Number of pages15
JournalApplied Economics
Issue number32
Publication statusPublished - 9 Jul 2019


  • event study
  • market reaction
  • Pollution
  • sanction


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