Eco-Conscious Firms Have Lower Stock Market Risk

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.
Tima Bansal July 16, 2010
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.


Implications for Managers

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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