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Eco-Conscious Firms Have Lower Stock Market Risk

Firms that appear environmentally responsible experience lower stock market risk. This study offers firms a clear motivation for acting responsibly.

Firms that appear environmentally responsible experience less company-specific stock market risk. This paper offers firms a clear motivation for acting responsibly. Further, this study shows that firms can manage others’ impressions of their environmental responsibility and shape this risk.


Up to 80 percent of firms’ stock price instability is based on risks that affect a particular firm, such as negative earnings reports, labour strikes and oil spills. Firms with high risk have trouble earning stable cash flows and entering new markets. Firms often try and manage this risk by issuing press releases and managing the impressions that investors hold of the firm.


  • Environmentally responsible firms experience less company-specific stock risk than irresponsible firms.

  • Firms can manage this risk by the information they release to the press. In particular, responsible firms that try to manage others’ impressions of the firm magnify their risk; irresponsible firms that try to manage others’ impressions of the firm dampen their risk.

Implications for Managers

  • Firms are now given clear reasons for being perceived by others as responsible–in particular, lower company-specific risk. This will give them easier access to equity capital.

  • For those firms seen as already being environmentally responsible, it is best to not tout their green achievements. Investors are already rewarding them.

  • Those firms who are not seen as environmentally responsible can merit by offering more information about their greening practices.

Implication for Researchers

Research could apply a wider measure of firm legitimacy to test whether these results apply beyond highly polluting industries. It would also be useful to test for non-linear relationships between environmental legitimacy, impression management and unsystematic risk, and whether investors will more likely act on information of companies with low environmental legitimacy.


The constructs used in this paper were environmental legitimacy, measured as the Janis-Fadner coefficient; unsystematic risk; and, impression management, measured by press releases. The theoretical model applied institutional theory. The sample included 100 firms from heavily polluting industries from 1990-1994. Media accounts from the Wall Street Journal were used to assess firm environmental legitimacy. Articles from the Press Release Newswire electronic archive were used to calculate impression management. Results were calculated using regression analysis and a two-way ANOVA.

Bansal, Pratima, & Clelland, Iain. (2004). Talking Trash: Legitimacy, Impression Management, and Unsystematic Risk in the Context of The Natural Environment. Academy of Management Journal, 47(1): 93-103.

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  • Tima Bansal

    Tima Bansal is the Founder of the Network for Business Sustainability and Professor of Strategy and Sustainability at the Ivey Business School (Canada). She also heads Innovation North, which helps businesses create value for themselves and society simultaneously over the long term.

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