Environmental Clearance : Daunting Challenge & Mystifying Signal to Stakeholders of India

Nations all over the world & India has given utmost importance for protecting, nurturing, preserving and saving the environment. For business, environmental clearance presents both daunting challenges and stimulating opportunities. One challenge is the threat to physical infrastructure, while another is regulatory uncertainty. Environmental Clearance is an ongoing process and has no importance from the shareholders of the company. Hence, there should be no significant effect on the value of the firm & its stock prices after the clearance announcement. However, there is a greater importance and challenge for a management of an existing company to have environmental clearance for any new project because of huge investment in physical infrastructure prior to clearance. Hence, after the environmental clearance, management of company expects to have favorable reaction to its stock prices. The contradiction between shareholders belief and company expectation, which expects no change in stock prices consequent to environmental clearance, and the reality, with company expectation of significant market reaction, motivates the present study. The market response & reaction to announcement of environmental clearance is investigated with the dataset from an emerging country – India for 29 companies. Paper has identified the challenges of environmental clearance from the Ministry of Environment & Forest, and examined to what extent an announcement has an impact to the companies' share price under efficient market hypothesis. The findings may have immense implications for the market regulators in protecting the interest of company & investors for trading strategies