Market Volatility and Investors’ View of Firm-Level Risk: A Case of Green Firms
Peer reviewed, Journal article
Published version
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https://hdl.handle.net/11250/2674023Utgivelsesdato
2020Metadata
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Sammendrag
Do investors believe that firm-level (i.e., idiosyncratic) risk of green (i.e., environmentally
responsible) firms is relatively lower? How does high market volatility affect the investors’ view on the
firm-level risk of green firms? This paper addresses these questions by investigating the relationship
between firm-level (idiosyncratic) risk and firms’ environmental performance. Further, we examine
the effect market volatility has on the relationship. We estimate fixed-effect panel models using 8036
firm-year observations across 793 firms. We test robustness of the results with difference-in-difference
(DiD), propensity score matching (PSM) and dynamic panel with the generalized method of moments
(GMM) estimations. We find that investors generally associate firms that perform well on the
environmental front to be of lower risk. However, during periods of high market volatility, just
performing better than the industry does not make the investors see the firms’ risk as being significantly
lower. How well the firms perform in relation to the industry performance is associated with the
investors believing that the firm’s risk is significantly lower.