Ethical mining: stocks drop for companies linked to human rights abuses

The assassination of environmental activists related to mining activities has led to share market losses of more than $130 million (US$100 million) for mining companies. However, this depreciation in share value only impacts companies named or implicated in such negative events. Negative media coverage also contributed to the sudden financial declines, with almost 500 deaths over the past 20 years attributed to killing events associated with opposition against mining projects. Since 1998, close to 500 people have died because of 354 killing events associated with local opposition against mining projects. More than one quarter of the fatalities occurred in the Philippines, while Peru, India, Guatemala and Colombia were also named as dangerous countries for environmental activists.

International research by Monash University and Oxford University has revealed how global stock markets reacted to mining companies associated with high-profile human rights abuses. The study found that negative returns from assassinations were stronger during periods of slow news cycles compared to when coinciding with competing newsworthy events. Furthermore, researchers found that activist assassinations correlated to royalties paid by firms to domestic governments. Collecting and coding more than 20 years of data on assassination events, researchers used ‘Event Study Methodology’ to examine how publicity of these events impacted the asset prices of firms associated with abuse. Research showed that publicising abuses had a significant negative impact on the market performance of mining companies, with cumulative falls of more than 2 percentage points observed in roughly 10 days after the incident. Analysing hundreds of data samples, researchers found no evidence of abnormal returns for companies on the days leading up to assassination attempts.

The research is a joint project between Associate Professor Paul Raschky from Monash Business School; David Kreitmeir, a PhD student from Monash Business School; and Professor Nathaniel Lane from the University of Oxford. Associate Professor Raschky said that since 2002, more global environmental activists have been killed than Australian or UK soldiers in war zones. These abuses are the focus of global publicity campaigns by human rights groups and the media. “Multinational companies are sometimes connected with human rights violations at the global periphery,” Associate Professor Raschky said. “In the absence of legal frameworks that govern corporate misbehaviour abroad, global civil society, including activists, human rights groups and the media, are often the only institution to hold large multinational corporations accountable for their misbehaviour.”

Associate Professor Raschky added that the tragedies are often swept under the rug by governments and media outlets due to competing interests and financial investments. Researchers found that extreme actions taken by multinationals against civil society have long-term financial repercussions. Researchers observed little market action on the day of an assassination, with a borderline significant effect of around -0.7 percentage points the next day. This initial reaction was followed by a stable decline in the next four days and a steep decline from day five through day 10 after the event. “These results indicate two key findings,” Kreitmeir said. “First, our event study results are not merely picking up a downward pre-trend in the asset prices for those companies associated with violence. Second, the factual or expected disclosure of a company’s role in the assassination event seems to be at the root of the estimated effect.”

Institutional investors that follow event-based trading strategies, such as hedge funds, also withdrew funds from mining companies following assassinations — sometimes by as much as 16.5%. Associate Professor Lane said the findings highlight the impact of informational campaigns by civil society on multinational corporations, adding that being linked to human rights abuse cases can influence an associated company’s stock market value. “We believe that our results can build the foundation for a novel and important research stand on the political economy of multinational operations and the role of civil society in governing transnational corporate activities,” Associate Professor Lane said.

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