2004年-世界发展银行全球_Disclosure_of_Environmental____________Violations_and_the_Stock_Market_in_the_Republic_of_Korea_39页_374kb

Summary of "Disclosure of Environmental Violations and the Stock Market in the Republic of Korea"

Core Content

This paper investigates the reaction of the Korean stock market to the public disclosure of environmental violations through the Ministry of Environment's Monthly Violations Report (MVR). The study builds on the growing body of literature examining how capital markets respond to environmental information, particularly in developed countries, and extends this analysis to the Republic of Korea.

Main Points

• Public Disclosure in Korea: The Ministry of Environment has been publishing monthly lists of environmental violators since 1984. These lists include firms that fail to comply with environmental laws and regulations, such as emission standard violations and non-operational pollution control equipment. From 1993 to 2002, over 7,000 violation events were reported, involving more than 3,400 facilities.

• Focus on Traded Companies: Approximately 17% of the violation events involved firms listed on the Korea Stock Exchange (KSE), despite these firms representing only 1% of all manufacturing facilities. This suggests that traded companies are disproportionately represented in the MVR, possibly due to their larger scale and public visibility.

• Media Attention: About 11% of the total violation events were covered by printed media. Traded companies were more frequently reported in the media, with 40% of the covered events involving them, compared to 60% for non-traded companies. Violations related to pollution abatement equipment and government orders received more media attention than others.

• Event Study Methodology: The paper employs an event-study approach to analyze the market reaction to each violation event. The methodology includes identifying the event window, estimating normal returns using a market model, and calculating abnormal returns (AR) and cumulative abnormal returns (CAR) to assess the market impact.

• Market Reaction: Of the 87 events analyzed, 52 (60%) showed a statistically significant negative market reaction. The average percentage reduction in market value was 9.7%, which is higher than results from similar studies in the U.S. and Canada, but comparable to those in Argentina, Chile, Mexico, and the Philippines.

• Event Type Analysis:

  • Violation of Emission Standards: 65.5% of events in the dataset, with an average market value reduction of 8.96%.
  • Failure to Operate Pollution Control Equipment (PCE): 19.5% of events, with an average market value reduction of 15.3%.
  • Other Events: 13% of events, with smaller average impacts.

• Statistical Significance: A statistical test confirmed that the market reaction to emission violations and PCE failures was not significantly different at the 10% significance level, despite the different magnitudes of impact.

• Temporal Trends: Market reactions to MVR events decreased over time, with average reductions of 13.8%, 4.58%, and 8.21% in the sub-periods 1992–1994, 1996, and 1999, respectively. This indicates a potential decline in the market's sensitivity to the MVR over time.

Key Findings

• The Korean stock market reacts significantly to environmental violations, particularly to those involving publicly traded companies.
• Traded companies are more likely to be reported in the media and to experience a drop in market value following MVR announcements.
• The impact of environmental violations on market value is more pronounced for failures to operate pollution control equipment than for emission standard violations.
• Despite a general trend of decreasing market sensitivity, the overall market reaction remains significant and suggests that capital markets can be an important channel for creating incentives for environmental compliance.

Conclusion

The paper concludes that the Korean public disclosure program has had a measurable impact on the stock market, with firms listed in the MVR experiencing a significant decline in market valuation. While the effect has diminished over time, it still indicates that environmental information can influence investor behavior and firm performance. This suggests that public disclosure of environmental violations may serve as an effective tool for promoting environmental compliance, even in the absence of strict regulatory enforcement.