The Deepwater Horizon accident in 2010 did not hurt BP’s long-term stock returns

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A new analysis of the aftermath of the deadly Deepwater Horizon accident in 2010 suggests that although the reputation of BP, the oil and gas company responsible for the event, declined until 2017, its stock market returns did not. been significantly affected in the medium and long term. -term. William McGuire of the University of Washington in Tacoma and colleagues present these findings in the open-access journal PLOS ONE June 15, 2022.

BP had leased an offshore oil rig called Deepwater Horizon in the Gulf of Mexico. On April 20, 2010, it exploded, killing 11 workers and causing the largest offshore oil spill in US history. Industrial accidents like Deepwater can cause lasting damage to corporate reputations and finances. However, the precise extent of the impact of this incident on BP is unclear.

To help clarify, McGuire and his colleagues used a method known as “synthetic control analysis”, in which data on companies similar to BP was mathematically compiled to create a “synthetic mark” representing how which BP could have gotten away with if the accident had not happened. The researchers then compared the actual value of BP reputation and stock market performance to the performance of the synthetic brand.

Compared to the hypothetical reputation of the synthetic brand, BP’s reputation dropped by 50% after the Deepwater Horizon accident and remained impaired until 2017. However, while BP share price fell immediately after the accident, in the longer term Stock market yields have not decreased significantly from hypothetical synthetic brand yields. This is true both for a medium-term period of 1-2 years after the accident and for a long-term period of 2-7 years.

The researchers also found no evidence that the Deepwater accident harmed the reputations or stock returns of other oil and gas companies.

These results suggest that environmental accidents can lead to a lasting decline in a company’s reputation, but do not necessarily affect long-term stock market performance, nor the reputation and stock price of similar companies. The researchers suggest a number of potential explanations for these results and note that stock markets do not necessarily create strong enough incentives to promote industrial safety.

The authors add: “Following the Deepwater accident, BP’s reputation has shown a serious and persistent decline. Yet, in terms of financial market returns, although the share price has fallen drastically during the first two months following the spill, no statistically significant decline in stock market returns was found either in the medium term (1-2 years) or in the long term (2-7 years).

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More information:
Sanctions for industrial accidents: The impact of the Deepwater Horizon accident on BP’s reputation and stock market returns, PLOS ONE (2022). DOI: 10.1371/journal.pone.0268743

Quote: 2010 Deepwater Horizon accident did not hurt BP’s long-term stock returns (2022, June 15) Retrieved June 15, 2022 from horizon-accident-bp-long-term.html

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