Examining the Financial Impact of Biodiversity‐Related Reputational Disasters

ABSTRACT This research investigates the reaction of financial markets to biodiversity‐related corporate events, utilising an EGARCH model to assess the implications on stock returns and volatility. Results reveal that markets significantly respond to these events, demonstrating heightened sensitivity and volatility that underscore the financial relevance of biodiversity risks. We find that investors differentiate between events based on their novelty and severity, reflecting a nuanced valuation approach towards environmental information, highlighting the importance of transparency and the role of information asymmetry in market efficiency. Our findings advocate for stricter disclosure requirements and enhanced regulatory frameworks to improve market transparency concerning environmental risks. This research underscores the need for further integration of biodiversity considerations into financial decision‐making and regulatory policies.