Restoring confidence : ESG scandals and impact of corrective actions
Salo, Hanna (2020)
Salo, Hanna
2020
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Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi:amk-202101301724
https://urn.fi/URN:NBN:fi:amk-202101301724
Tiivistelmä
Stakeholders of a company are paying more and more attention to ESG, which is a set of criteria describing company’s commitment to ecologically, socially and ethically sound operations. To study the impact of severe ESG failures on shareholder return, the effect of a select number of corporate ESG scandals and corrective actions was studied. The impact of the scandals on the companies’ annual financial performance in the following years was also studied. The selected corporate scandals were VW emission scandal, BP oil rig explosion, Kobe Steel quality data fraud and Nokian Tyres test cheat.
The initial news revealing the scandals were followed by significant fall in share prices. The response of the share prices to the news about corrective actions performed by the companies after the scandals was varied depending on the timing of the corrective action, the cultural environment in which the company operates and the content of the news. The impact of the scandal on company’s annual financial performance was surprisingly modest and the financial metrics recovered already in the year following the scandal.
To conclude, major ESG scandals negatively affect both shareholder return and the company’s annual financial performance. Based on the studied cases, shareholder return is more vulnerable than a company’s financial performance to consequences of company ESG scandals. In addition, the timing and the qualities of corrective actions to recover shareholder confidence should be carefully considered case by case.
The initial news revealing the scandals were followed by significant fall in share prices. The response of the share prices to the news about corrective actions performed by the companies after the scandals was varied depending on the timing of the corrective action, the cultural environment in which the company operates and the content of the news. The impact of the scandal on company’s annual financial performance was surprisingly modest and the financial metrics recovered already in the year following the scandal.
To conclude, major ESG scandals negatively affect both shareholder return and the company’s annual financial performance. Based on the studied cases, shareholder return is more vulnerable than a company’s financial performance to consequences of company ESG scandals. In addition, the timing and the qualities of corrective actions to recover shareholder confidence should be carefully considered case by case.