The Financial Fallout from Chernobyl: Risk Perceptions and Regulatory Response
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In this chapter we explore the effect of the Chernobyl nuclear accident on the returns of nuclear electric utilities in the United States. We use the accepted market model to analyze the impact of the accident on stock prices in two periods: (1) the period immediately following the announcement of the accident on April 28,1986; and (2) the period surrounding the release of the Soviet report detailing the circumstances of the accident on August 18, 1986. The study is in the spirit of the work on the financial effects of the Three Mile Island nuclear accident by Bowen, Castanias, and Daley (1983) and Pulley and Hewlet (1985), and it confirms and extends Fields and Janjigian (1987). Our technique is first to estimate the impact of the accident on each utility in our sample, to test for individual and aggregate effects for nuclear and nonnuclear firms, then to explain differences in effects across firms using what we know about the regulatory environment of nuclear utilities. We find that nuclear utility stock prices were negatively affected by the accident, and the magnitude of the effect is related to the nuclear exposure of the utility. The release of the report had a positive effect, partially offsetting the initial impact. We also discuss the expected effect on nuclear liability and safety regulation and the government response to the accident.