The Price of Environmental Sustainability: Empirical Evidence from Stock Market Performance in China

Chinese manufacturers, which produce nearly one-fourth of global manufacturing outputs, play important roles in the global supply chains for many products. The Chinese government proposed the Made in China 2025 plan to help manufacturers upgrade their technology, so that the country will become a green and innovative world manufacturing power. It is important for researchers, practitioners, and the government to know the benefits and costs of being environmentally sustainable. In this paper, we investigate the effects of environmentally sustainable announcements of Chinese firms in the manufacturing, and the wholesale and retail industry on their stock market performance. First, we find negative market responses, which are significant in scale and statistics. Second, the stock market reactions are different for firms in different industries. Third, the stock market reactions are different in different years. Finally, we control the firm size and the book-to-market ratio with the Fama-French three factor model. The result is highly consistent with the one from the simple market model.