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When an article is at war with itself

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It is odd to see an academic peer-reviewed paper in which the actual substance of the paper seems to diverge so completely from what the authors say are their conclusions.

This is the case, though, in a new paper by Cecile Carpentier and Jean-Marie Suret, dealing with the question: do stock price declines create a plausible deterrent for industrial accidents?

Here's the link: JofEEM.

Here's the abstract:

We analyze the stock market reaction to 161 major environmental and non-environmental accidents, reported on the front page of the New York Times for half a century. To determine if the market induces a real deterrence effect, we extend the event windows up to one year. On average, the market reacts negatively and enduringly to the announcement of an accident. However, this average effect is largely driven by the airline industry and by government interventions. The estimated average compounded abnormal return following environmental accidents does not differ from zero after one year. This does not exclude, in severe events affecting large firms, huge losses in equity value, but the significant negative cumulative abnormal returns estimated immediately after an environmental accident in previous studies do not persist. Our results suggest that in a market driven by institutional investors, the deterrence effect is likely to be weak.

You can perhaps see the problem there. In two waves even within that brief paragraph, the authors seem to be acknowledging and then working against the inferences one would draw directly from their data.

First, the market reacts "negatively and enduringly to the announcement of an accident." That would seem to indicate that the answer to the underlying question is "yes, this is a deterrent." Then they say in effect "if we massage the data properly we can get a 'no' answer after all."

Then a second wave. Yes, they say, even as massaged, their data shows that in "severe events affecting large firms" there could be huge losses in equity value from such accidents. But (applying further lotion and massaging again) that'll turn out to be weak. Phew, desired conclusion attained.


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