Although there is a growing body of literature on contrarian profits, currently no study exists that examines their relation to industrial strategies regarding environmental policies. Japan is a world leader in the implementation of ‘green’ policies. This thesis uses Japan as a case study to test whether announcements of green policies result in contrarian profit. To achieve this, I investigate the impact of 424 environmental regulation announcements during 2001 to 2012 using event study methodology, contrarian portfolio strategies and seasonality models. I control for a number of factors, including trading volume, firm size, sales, profitability ratios, industry effect and owner structure. My results show that (1) contrarian behaviour exists related to announcements of environmental regulation, (2) fundamental factors affect contrarian profits and (3) corporate governance mechanisms (specifically, those related to major shareholders) are not effective for polluting firms.
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