This thesis studies the effect of designation of Environmental Affinity Company(EAC) on the stock returns. Recently, the importance of environmental management has increased and environmental issues have become an important issue in business strategy.
Prior literature documents that a certain relationship exists between environmental performance and financial performance. Built on these results, this study investigates the effects of the designation of EAC on the stock returns around the date of designation and long-term periods subsequent to the designation.
The announcement effects around the date of designation are tested using the standard event study approach. The excess return if calculated suing mean-adjusted return model. The results do not strongly support the accouncement effects around the designation date. However, this study finds that EAC substantially outperforms comparable companies for a long-term period ranging from 100 to 400 days after the designation date. The main reason for the better performance by EAC seems to be that the the risks of these companies are perceived bow by the market.
From these results, this study that the designation of EAC favorable affects the their financial performance and therefor market returns.
