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An Analysis of the Wealth Effects of Green

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Event study methodology is used to examine the wealth effects, or stock 1993; Shrum, McCarty, and Lowrey, 1995). As these percepprice

reactions, to corporate announcements of green marketing activities. tions have increased, the green movement has received a great

Two procedures for measuring stock price reactions and two different degree of attention by the public in such areas as the media,

tests of significance are used in the study. The results for the sample of the political arena, special interest groups, and consumers

73 firms show that the market value for the average firm in the sample (Vandermerwe and Oliff, 1990; Zimmer, Stafford, and Stafdeclines

by 3.14% during the period from 10 days prior to 10 days after ford, 1994).

the news is announced. Announcements related to green products, recycling The movement has also begun to receive more attention

efforts, and appointments of environmental policy managers result in by managers who are increasingly moving from defensive and

insignificant stock price reactions. However, announcements for green reactive responses to the concern toward pro-active actions

promotional efforts produce significantly negative stock price reactions. (Vandermerwe and Oliff, 1990). Pro-active actions related to

Sampling by financial and operational characteristics shows that firms environmental issues is a subset of the well-documented area

with higher growth in earnings, larger firms, and firms with higher adver- of environmental management (see Clark, Varadarajan, and

tising-to-sales ratios experience relatively less negative stock price reac- Pride, 1994), which has been successfully applied to markettions.

Managerial implications of the results and directions for future ing (e.g., the seminal article by Zeithaml and Zeithaml, 1984).

research are also presented. J BUSN RES 2000. 50.193-200. У 2000 Environmental management assumes that firms can, to a deElsevier

Science Inc. All rights reserved. gree, create, shape, or manage, operating environments. It

attempts to control, change, influence, or adapt firm inputs

over which external groups have some amount of control.

Firms' actions relative to environmental issues should con- In recent years, environmentalism, or the green movement, sider the firms' relationships to numerous stakeholder groups,

in the United States has grown in relative strength as a such as stockholders, employees, customers, suppliers, finanmainstream

concern (Ottman, 1993). The green move- cial institutions, governments, interest groups, and the general

ment has been viewed as a significant social movement in public. Stakeholders may feel that management actions, such

recent years (Banerjee, Gulas, and Iyer, 1995). Numerous as those related to the green movement, reflect the perceptions

aspects of everyday life, such as politics, consumerism, tech- of various stakeholders (Zinkhan and Carlson, 1995). Hownology,

product purchases and consumption, marketing, ever, as Zinkhan and Carlson (1995) point out, not all stakemanufacturing,

and resources (Zinkhan and Carlson, 1995; holder groups will concurrently be pleased with management

Zimmer, Stafford, and Stafford, 1994), are affected by the actions. Also, as Clark, Varadarajan, and Pride (1994, p. 35)

movement. The effects on everyday life are also widespread, state, "[t]he extent to which the interests of businesses are

because in a global economy, changes contributing to develop- compatible with, or opposed to, the interests of other individument

of environmental policies and strategies are not limited als, groups, and organizations is a point of much controversy."

to national boundaries. Some of the changes in the United To ensure that they are not being mislead by firms, stakeStates

result from Americans' increasing perceptions of them- holders may use different methods with which to oversee

selves as environmentalists (Carlson, Grove, and Kangun, management actions regarding the environment (Coddington,

1993). Government, at all levels, impose new laws, regulations,

and proposals on firms in response to increasing environmental concern, and may suggest possibly greater controls

should firms not modify behaviors. Consumers tend to re- strong commitment of senior management, through pro-active

spond more favorably to firms with environmentally conscious changes, can cause the firm's stakeholders to realize that the

images (Carlson, Grove, and Kangun, 1993), yet an over- firm has sincerely made the green movement a priority (Ottwhelming

percent of the public feels that firms are not suffi- man, 1993). Based on this discussion, the null hypothesis can

ciently concerned about important environmental issues be stated as:

(Davis, 1994). Capital markets often demand "green audits"

H1: Announcements of green marketing activities will not

of firms; firms that do not have environmentally sound programs

in place may be denied funds. result in stock price reactions. The alternative hypothA

significant stakeholder in the publicly-held corporation esis is that announcements of green marketing strateis

the stockholder. Azzone and Bertele (1994) note that stock- gies will not be viewed favorably by investors.

holders, either directly or through "ethical"



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