Using event study techniques, I test capital market reactions to environmental damages caused by hazardous materials (hazmat) spills in train accidents. Controlling for property damages, human injuries and lives lost, and other relevant factors, I find that the average hazmat spill is correlated with a small but statistically significant decrease in the daily stock return of the railroad involved in the spill. Further, by exploiting an exogenous change in maximum legal environmental damages liability, I test whether this market reaction to hazmat spills reflects incorporation of damages to ecosystem services into firm liability or, alternatively, reflects the importance of environmental stewardship in the valuation of firm goodwill, or both. The results, while not conclusive, indicate that at least some, but not all, of the negative reaction to hazmat spills stems from investor valuation of environmental stewardship, as opposed to investor concern for liability for environmental damages.

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