The economic effect of forest policy changes in British Columbia: an event study of stock-market returns

Abstract

In 1987 the government of British Columbia (B.C.) made substantial changes in its forest policy, including "clawing back" 5% of the volume committed on all of its replaceable licenses and shifting of reforestation costs to the licensees. Analysis of the reaction of stock prices to the announcement of these policy changes reveals that the policy had a negative, but not statistically significant impact on B.C. forest products companies taken as a whole. Those medium-sized B.C. forest products firms that own little private land and operate mainly in B.C. suffered small but statistically insignificant losses. The policy changes apparently did not affect large B.C. forest products firms and non BC-based forest products firms. The results may arise because (i) as a result of restrictions on log exports the volume reductions were simply reallocated within extant timber markets, (ii) timber from the replaceable licences is fully priced, (iii) the adjustments were small when compared with the overall market capitalization of the firms involved, and (iv) there was general financial euphoria in the late 1980 s. These findings should not be extended to larger policy adjustments or to the problem of evaluating the impact of province-wide reductions in allowable harvest levels.