Market Reactions to EU Textile Sustainability Regulations An Event Study of European Clothing Firms

Abstract

In this thesis, I investigate the financial impact of the EU textile regulations on European clothing companies by analyzing abnormal returns around key regulatory announcement dates. The study covers various firm-specific characteristics, including ESG scores, total assets, and market-to-book ratios, to determine their influence on market reactions. The firms selected are divided into four different portfolios; total firms, luxury, fast fashion and sports. My findings suggest that the third announcement of EU textile regulations resulted in significant negative abnormal returns for the overall portfolio between May 31. and June 1, 2023, indicating substantial market concerns. Contrary to expectations, the fast fashion portfolio exhibited significant positive abnormal returns for the first event, suggesting investor optimism about their adaptability. Luxury and sports portfolios, however, showed significant negative abnormal returns, reflecting concerns about compliance costs. The second event did not exhibit any significant abnormal returns for none of the four portfolios analyzed. The analysis of firm-specific characteristics revealed that larger firms experienced higher abnormal returns, while ESG scores did not significantly affect returns. These results imply that regulatory announcements can have immediate and varying impacts on different segments of the textile industry, with fast fashion firms potentially being more resilient than anticipated.