Does an environmental misconduct have cross-sectoral spillover effects on the stock market : the case of the Volkswagen scandal

Abstract

The Volkswagen emissions scandal of 2015 led to numerous financial consequences at different levels and for a substantial variety of stakeholders. This event therefore opened the way for a large research field. As most of the previous published papers investigating it focused on an intra-sectoral analysis, this thesis aims to assess the potential cross-sectoral spillover effects on the stock market caused by the event. In other words, the point of this research is to determine, based on the case of this scandal, whether an environmental misconduct in one industry engenders spillover effects on other external industries (which are potentially harmful for the environment). After briefly reminding the reader of the context of this event and covering the existing literature about the issue, a first hypothesis tries to answer this research question, using a GARCHX methodology with a dummy variable representing the event days of the scandal. In the models, each sector is introduced by a global index. Given the not significant results of this first analysis, a second hypothesis is investigated thanks to a VAR model and a Granger causality test. It questions the potential importance of the closeness of the business activities of the analyzed sectors when implementing such a crosssectoral spillovers research. Again, no significant impact was found on these new sectors supposed to be closer to the automotive industry. The main conclusions then suggest that an environmental corporate misconduct in one sector does not affect stock markets of external sectors, no matter the closeness they have with the event announcing sector. Nevertheless, it is important to remind that, to confirm that these findings may be applied to all events similar to the Volkswagen scandal, such a research should be carried out using a wider sample of events rather than focusing on one only.