IMAP Lunch Seminar: Do Investors Price the Brussels Effect? Regulatory Risk and Sustainability in U.S. Markets

This talk will explore whether U.S. equity markets respond when EU regulations spill over into global markets through the "Brussels Effect." Using the case of European sustainability reporting rules under the Corporate Sustainability Reporting Directive, I examine how investors price in regulatory risk: U.S. firms with European operations experienced negative stock market reactions around key regulatory milestones. These reactions are linked to higher discount rates, reflected in greater volatility and shifts in option pricing. Of note, the effects are present both for firms directly covered by the rules and for those indirectly exposed, and they are strongest for high-emissions firms. Overall, the discussion will suggest that the Brussels Effect—as an expression of the EU´s extraterritorial regulatory ambition—creates tangible regulatory risk for U.S. firms.

Tati Fontana, PhD candidate in Accounting at BU Questrom School of Business will present.

Back to Calendar