Do Markets Care About Non-Market Strategy?

Abstract

This study examines how non-market strategy and institutional conditions affect stock market devaluation following negative events. Research on negative events and firm value suggest negative events can drastically reduce the share price of culpable firms as markets expect negative events can lead to new regulations that reduce future firm performance. Research on non-market strategy, however, suggests firms can acquire some degree of influence over the creation of new regulations, contingent on institutional conditions. This paper uses event study methodology to analyze relationships between non-market strategy, institutional conditions, and devaluation after negative events using data on hazardous material spills in the United States from 1998 - 2011. Results suggest non-market strategy in the form of corporate political activity might enable firms to proactively mitigate devaluation after negative events.