Market reactions to regulations on minerals from the democratic republic of the Congo

Abstract

Using an event study approach to analyze stock market data from the United States, I investigate how regulations on conflict minerals sourced in the Democratic Republic of the Congo were perceived by investors. I find that for a subset of mining companies, stock returns were abnormally high when regulations in the US became more likely. I also find that returns were higher for communications equipment manufacturing companies when strong regulations in the DRC were announced. I argue that these responses were due to the competitive environments faced by each of these company types. These findings relate to debates surrounding the effects of the conflict mineral regulations. While some critics argue that reporting requirements were tantamount to a ban on minerals from the DRC, I find that stock returns for a subset of companies were sensitive to legislation in the DRC after legislation became law in the US, suggesting that market participants did not expect a complete trade ban on regulated mining and trading activities.