Is There a Market Payoff for Being Green at the Lima Stock Exchange?

Abstract

In contrast to research studies on developed markets, there is scarce evidence about the relationship between firms' economic and environmental performance in emerging markets. In this paper, evidence is provided for such a link by showing that publicly traded firms at the Lima Stock Exchange (LSE) offer positive abnormal returns around the announcement date of an ISO 14001 certification. Although there were only 10 firms that fulfilled the sample criteria, positive and statistically significant average cumulative abnormal returns could be found ranging from 0.7% to 1.27% for one day previous and one day after the announcement date of the first ISO 14001 certification depending on the model that was used to generate abnormal returns. The positive abnormal performance is not produced by just one firm and is robust across different model specifications. Although, the low magnitude of the abnormal performance indicates that environmental issues still have little importance to investors at the LSE, Peruvian-based firms have an important incentive to become green.