How do investors respond to Green Company Awards in China?

- Firms winning Green Company Awards in China experience losses in shareholder value.
- Firms in low-pollution industries and privately-owned firms had more negative responses.
- Peers of winning firms showed higher announcement returns than the award winners.
- Results are not driven by Chinese stock market inefficiency or non-credibility of the award.

We find that firms winning Green Company Awards in China from 2008 to 2011 experienced on average insignificant and in some cases significantly negative effects on shareholder value. Various robustness checks suggest that these findings are not driven by the inefficiency of the Chinese stock market or a lack of perceived credibility of the award. In addition, we find important variation in the responses across firms: shareholders of firms in low-pollution industries and firms with primarily private ownership responded more negatively to award announcements. Furthermore, the peers of winning firms showed higher announcement returns than the award winners. Our results suggest that a key benefit of corporate environmentalism in China comes through building stronger relationships with government, and that otherwise the market generally discourages firms from environmental leadership.