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How does capital market respond to Certified Emission Reductions (CERs) announcements in India: An event study methodology

Praveen Kumar (Department of Business Administration, National Institute of Technology, Kurukshetra, India)
Mohammad Firoz (Department of Business Administration, National Institute of Technology, Kurukshetra, India)

Managerial Finance

ISSN: 0307-4358

Article publication date: 28 May 2019

Issue publication date: 8 August 2019

Abstract

Purpose

The purpose of this paper is to analyze the relationship between Certified Emission Reductions (CERs) information and a firm’s stock prices.

Design/methodology/approach

The present study is based on 193 CERs announcements by Indian firms over a 13-year period 2005–2017. The event study methodology is used to examine the impact of CERs announcements on a firm’s share prices.

Findings

The study suggests that the issuance of CERs did not produce any significant abnormal return. More specifically, the outcomes of event study shows that over a two-day event window from the event day to the day after the event (i.e. days 0 to 1), the mean and median of AARs are −0.25 and −0.34 percent, respectively. The abnormal returns on day 1 are not statistically significant as per the t-test. Moreover, the mean and median of abnormal returns after one day (−1) are negative, indicating that investors react negatively to CERs announcements. However, the mean and median of CAARs over both the two-day (i.e. days −1 to 0 and days 0 to +1) and three-day (i.e. days −1 to +1) event windows are positive, but not statistically significant based on the t-test.

Research limitations/implications

The findings of the study are quite comprehensive, relatively used only market-based criteria of a firm’s financial performance, e.g., share price, at times, inhibits generalizing the results.

Originality/value

To the best of the author’s knowledge, the present study is a first of its kind to investigate the relationship between the CERs information and a firm’s stock prices.

Keywords

Citation

Kumar, P. and Firoz, M. (2019), "How does capital market respond to Certified Emission Reductions (CERs) announcements in India: An event study methodology", Managerial Finance, Vol. 45 No. 7, pp. 950-965. https://doi.org/10.1108/MF-12-2018-0635

Publisher

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Emerald Publishing Limited

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