THE ECONOMIC EFFECT OF FOREST POLICY CHANGES IN BRITISH-COLUMBIA - ANEVENT STUDY OF STOCK-MARKET RETURNS

In 1987 the government of British Columbia (B.C.) made substantial cha nges in its forest policy, including ''clawing back'' 5% of the volume committed on all of its replaceable licenses and shifting of reforest ation costs to the licensees. Analysis of the reaction of stock prices to the announcement of these policy changes reveals that the policy h ad a negative, but not statistically significant impact on B.C. forest products companies taken as a whole. Those medium-sized B.C. forest p roducts firms that own little private land and operate mainly in B.C. suffered small but statistically insignificant losses. The policy chan ges apparently did not affect large B.C. forest products firms and non BC-based forest products firms. The results may arise because (i) as a result of restrictions on log exports the volume reductions were sim ply reallocated within extant timber markets, (ii) timber from the rep laceable licences is fully priced, (iii) the adjustments were small wh en compared with the overall market capitalization of the firms involv ed, and (iv) there was general financial euphoria in the late 1980s. T hese findings should not be extended to larger policy adjustments or t o the problem of evaluating the impact of province-wide reductions in allowable harvest levels.