The 2010 Deepwater Horizon accident didn’t hurt BP’s long-term stock market returns

Horizon in deep water

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A new analysis of the fallout from the deadly Deepwater Horizon 2010 accident suggests that while the reputation of BP — the oil and gas company responsible for the event — declined during 2017, its stock market returns were not significantly affected in the mid- to long-term. William McGuire of the University of Washington in Tacoma and colleagues report these findings in the open access journal PLUS ONE On June 15, 2022.

BP was renting an offshore oil drilling rig called Deepwater Horizon in the Gulf of Mexico. On April 20, 2010, it exploded, killing 11 workers and causing the largest marine oil spill ever in US history. Industrial accidents such as Deepwater can cause long-term damage to companies’ reputation and finances. However, the exact extent of the impact of this incident on BP was not clear.

To help illustrate, McGuire and colleagues used a method known as “synthetic control analysis,” in which data for companies similar to BP are mathematically combined to create a “synthetic brand” that represents how BP would have fared had the accident not occurred. . Then the researchers compared what BP did reputation And the stock performance Synthetic brand performance.

Compared to the default reputation of the synthetic brand, BP’s reputation declined by 50 percent after the Deepwater Horizon accident, and remained weak through 2017. However, while BP’s Share price Immediately after the accident, long-term stock Market Returns were not significantly reduced compared to the default returns for the synthetic brand. This applies to both the mid-term period of 1 to 2 years after the accident and the long-term period of 2 to 7 years.

Nor did the researchers find any evidence that the Deepwater accident damaged the reputation or stock market returns of other oil and gas companies.

These findings indicate that environmental incidents can lead to a long-term deterioration in the company’s reputation, but do not necessarily affect the long-term performance of the stock market, nor the reputation and prices of similar companies. The researchers suggest a number of possible explanations for these findings and note that Stock market They may not necessarily create strong enough incentives to enhance industrial safety.

The authors add: “Following the Deepwater incident, BP’s reputation has shown a serious and persistent decline. However, in terms of financial market returns, despite the share price dropping significantly in the first two months after the spill, there was no statistically significant decline in Stock market returns are found either in the medium term (1-2 years) or the long term (2-7 years).

Studying the mechanisms of coupling between insurance companies and IPO companies in the emerging stock market

more information:
Industrial Accident Penalties: Impact of the Deepwater Horizon Incident on BP’s Reputation and Stock Market Returns, PLUS ONE (2022). DOI: 10.1371 / journal.pone.0268743

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