The Impact of Environmental Policy on Firm Values : An Event Study of Information Disclosure in the EU Emissions Trading Scheme

The purpose of this paper was to examine reactions on the stock market, due to the reporting of emissions and emission allowances of the European Union Emissions Trading Scheme (EU ETS), which can lead to a change in firm value. The methodology used was an event study approach, which was conducted by analysing the outcome on the stock market caused by a specific event. The event studied in this case was the day of the release of the Swedish Environmental Protection Agency’s (Swedish EPA) yearly reports regarding the international firms, active in Sweden, and their specific emissions and emission allowances. The data used in this study was based on stock prices and index prices for a group of firms active in the commodities and energy market in Sweden. The results indicated no apparent connection between high levels of emission allowance surplus and corresponding abnormal profits on the stock market. However, the results indicated that the stock returns of firms and industries that have relatively high levels of carbon dioxide emissions are affected more during the event period