Yusoff, R., Abd Rahman, S. A., & Wan Mohamed, W. N. (2006). The economic consequences of voluntary environmental reporting on shareholder wealth. Social and Management Research Journal, 3(2), 1-23, link: http://ir.uitm.edu.my/id/eprint/13008/
Abstract: This study was carried out to examine the economic consequences of voluntary environmental reporting on shareholders’ wealth among Malaysian Listed Companies that voluntarily disclosed environmental information in their financial report. One hundred andfifty two (152) companies ofBursa Malaysia (MSE) had been identified as a sample in the current study. Seventy six (76) companies were classified as environmental reporting companies while the remaining companies were classified as non-environmental reporting companies. The classification was done in order to determine the differences between share price, profitability and market equity for both types of companies. The study hypothesizes that voluntary environmental reporting leads to an improvement in the shareholders wealth. However, the results show that there is no significant difference between cumulative abnormal return for environmental and non-environmental reporting companies. Based on the results obtained, it can also be concluded that profitability and size of the companies do not have any significant roles in deciding whether or not to produce environmental reporting companies.
Nossa, V., Cezar, J. F., da Silva Júnior, A., Baptista, É. C. S., & Nossa, S. N. (2009). The relationship between abnormal returns and social and environmental responsibility: An empirical study of companies traded on the bovespa from 1999 to 2006. Brazilian Business Review, 6(2), 117-131, doi: http://dx.doi.org/10.15728/bbr.2009.6.2.1
Abstract: This article investigates the relationship between abnormal returns and the social and environmental performance of companies listed for trading on the São Paulo Stock Exchange (Bovespa) that regularly publish a social balance sheet according to the model proposed by the Brazilian Institute of Social and Economic Analysis (IBASE). We measured the social and environmental performance based on internal and external social and environmental responsibility indicators taken from the social balance sheets of companies that publish such a report, drawn from among the 100 largest companies by market value, between 1999 and 2006. To calculate abnormal returns we used the share price and beta, available in the Economática and Ipeadata databases. The hypothesis was tested by regression analysis with fixed-effect panel data, adjusted by the robustness tool, applying the Hausman test. The results show that the external social responsibility indicator, the internal social responsibility indicator and the environmental responsibility indicator do not have any relationship with the firms’ abnormal returns.
Abstract: Purpose – This study investigates the effect sustainability reporting has on companies’ financial performance. Sustainability reports are voluntarily released by companies that provide additional information to the stakeholders regarding the impact their activities have on the environment and society. Design/Methodology/Approach: This empirical paper analyses and identifies overlaps, gaps, limitations and flaws in current constructs of sustainability reporting. Using event study method to estimate abnormal returns for a 31 day event window for a sample of 68 listed companies, 17 listed in New Zealand Stock Exchange (NZX) and 51 listed in the Australian Stock exchange (ASX). Findings: Results of the empirical study indicate that sustainability reporting is statistically significant in explaining abnormal returns for the Australian companies. The cross-sectional analysis results of the combined dataset for the two countries support the view that the contextual factors of industry type significantly impacts abnormal returns of the reporting companies. In this regard, this study identifies several contextual factors, such as industry and type of sustainability report, that have the potential to impact the relationship. Only the CSR type of sustainability report was significant in explaining the abnormal return of New Zealand companies. Practical implications: To underscore the practical implications of the theory, it shows, by reference to the model, how sustainability reporting influences financial performance for companies engaged in industries that have environmental implications. However, the simplistic model may also have many other applications in management and the social sciences. Originality value: The proposed model is highly original in providing a framework for studying the impact of sustainability reporting in companies that have an environmental impact.
Wang, Y., Delgado, M. S., Khanna, N., & Bogan, V. L. (2019). Good news for environmental self-regulation? Finding the right link. Journal of Environmental Economics and management, 94, 217-235, doi: https://doi.org/10.1016/j.jeem.2019.01.009
Abstract: We investigate the stock market response to firm disclosure of positive environmental information and the link from that information to environmental outcomes. We classify environmental media releases by informational content and value relevance, and assess the abnormal stock returns of each type of event. While announcements of future environmental activities lead to the largest favorable stock market reactions, there is no guaranteed link from this type of information to environmental outcomes. Further analysis of the abnormal returns shows that the magnitude of the stock market reaction depends on firm financial characteristics across all event types rather than on firm environmental performance. Our results indicate that the ability for voluntary environmental information disclosure to induce environmental self-regulation is limited to the extent that firms are able to follow through with their announcements of planned environmental activities.
Voluntary Environmental Programmes (VEP)
Fisher-Vanden, K., & Thorburn, K. S. (2011). Voluntary corporate environmental initiatives and shareholder wealth. Journal of Environmental Economics and management, 62(3), 430-445, doi: https://doi.org/10.1016/j.jeem.2011.04.003
Abstract: Researchers debate whether environmental investments reduce firm value or actually improve financial performance. We provide some compelling evidence on shareholder wealth effects of membership in voluntary environmental programs (VEPs). Companies announcing membership in EPA’s Climate Leaders, a program targeting reductions in greenhouse gas emissions, experience significantly negative abnormal stock returns. The price decline is larger in firms with poor corporate governance structures, and for high market-to-book (i.e., high growth) firms. However, firms joining Ceres, a program involving more general environmental commitments, have insignificant announcement returns, as do portfolios of industry rivals. Overall, corporate commitments to reduce greenhouse gas emissions appear to conflict with firm value maximization. This has important implications for policies that rely on voluntary initiatives to address climate change. Further, we find that firms facing climate-related shareholder resolutions or firms with weak corporate governance standards – giving managers the discretion to make such voluntary environmentally responsible investment decisions – are more likely to join Climate Leaders; decisions that may result in lower firm value.
Keele, D. M., & DeHart, S. (2011). Partners of USEPA climate leaders: An event study on stock performance. Business Strategy and the Environment, 20(8), 485-497, doi: https://doi.org/10.1002/bse.704
Abstract: This research utilized an event study method to assess how the stocks of publicly traded companies responded before and after announcing their partnership with the United States Environmental Protection Agency (USEPA) Climate Leaders program. Although the stocks exhibited an average non‐significant positive abnormal return of 0.56% on the day of the announcement, the cumulative abnormal returns for the stock prices of the firms for two of the three event windows showed statistically significant negative returns. These results suggest that these firms’ public announcements of joining the USEPA Climate Leaders partnership did not have a positive impact on stock performance. While no immediate financial benefit was found in this research, the practices implemented by these firms to reduce their greenhouse gas emissions may still bode well for long‐term corporate earnings and attractiveness to investors.
Kim, E. H., & Lyon, T. (2011). When does institutional investor activism increase shareholder value?: the carbon disclosure project. The BE Journal of Economic Analysis & Policy, 11(1), doi: https://doi.org/10.2202/1935-1682.2676.
Abstract: This paper presents the first empirical test of the financial impacts of institutional investor activism towards climate change. Specifically, we study the conditions under which share prices are increased for the Financial Times (FT) Global 500 companies due to participation in the Carbon Disclosure Project (CDP), a consortium of institutional investors with $57 trillion in assets. We find no systematic evidence that participation, in and of itself, increased shareholder value. However, by making use of Russia’s ratification of the Kyoto Protocol, which caused the Protocol to go into effect, we find that companies’ CDP participation increased shareholder value when the likelihood of climate change regulation rose. We estimate the total increase in shareholder value from CDP participation at $8.6 billion, about 86% of the size of the carbon market in 2005. Our findings suggest that institutional investor activism towards climate change can increase shareholder value when the external business environment becomes more climate conscious.
Yu, F. (2012). Participation of firms in voluntary environmental protection programs: an analysis of corporate social responsibility and capital market performance. Contemporary Economic Policy, 30(1), 13-28, doi: https://doi.org/10.1111/j.1465-7287.2010.00248.x
Abstract: The Environmental Protection Agency (EPA) employs voluntary programs as a policy instrument to encourage firms to go beyond mere compliance with laws and regulations in protecting the environment. Based on event study methodology, this paper tests for abnormal stock market returns from membership in the National Environmental Performance Track (NEPT) program. The analysis shows that there is strong evidence that acceptance of a facility to the NEPT adds significantly to the market capitalization of the accepted firms. Corporate social responsibility can be financially rewarding for firms and voluntary programs of the EPA can be an effective complement to performance‐based regulatory instruments.
Lee, S. Y., Park, Y. S., & Klassen, R. D. (2015). Market responses to firms’ voluntary climate change information disclosure and carbon communication. Corporate Social Responsibility and Environmental Management, 22(1), 1-12, doi: https://doi.org/10.1002/csr.1321
Abstract: Despite the importance of the Carbon Disclosure Project (CDP), the question of how firms’ voluntary carbon disclosure influences capital markets and shareholder value remains unanswered. Using the event study methodology with a sample of firms from the CDP Korea 2008 and 2009, this paper investigates market responses to firms’ voluntary carbon information disclosure. The results suggest that the market is likely to respond negatively to firms’ carbon disclosure, implying that investors tend to perceive carbon disclosure as bad news and thus are concerned about potential costs facing firms for addressing global warming. In addition, the study examines the moderating effect of frequent carbon communication on the relationship between carbon disclosure and shareholder value. The results suggest that a firm can mitigate negative market shocks from its carbon disclosure by releasing its carbon news periodically through the media in advance of its carbon disclosure.
Dam, L., & Petkova, B. N. (2014). The impact of environmental supply chain sustainability programs on shareholder wealth. International Journal of Operations & Production Management, doi: https://doi.org/10.1108/IJOPM-10-2012-0482
Abstract: Purpose – Multinationals are increasingly pressured by stakeholders to commit to environmental sustainability that exceeds their own firm borders. As a result, multinationals have started to commit to environmental supply chain sustainability programs (ESCSPs). However, little is known about whether such commitment is rewarded or punished by financial markets, and if the stock price reaction differs depending on the type of firm that commits to such a program. This paper aims to discuss these issues. Design/methodology/approach – The authors conduct an event study followed by two-equation Heckman modeling, using a sample of 66 multinationals that committed to the ESCSP of the Carbon Disclosure Project (CDP). Findings – It was found that generally there is a marginally significant negative stock price reaction to announcement of participation in this ESCSP (i.e. -0.8 percent, po0.10). However, the authors argue and show that firms in industries that have historically faced more pressure from consumers are less likely to announce their participation. If one corrects for this industry bias, then the negative stock price reaction is even more pronounced (i.e. -3.2 percent, po0.05). Research limitations/implications – Using objective data, the study provides insights into the shareholder wealth effects of firms that commit to the ESCSP of the CDP. As such, the sample does not cover firms that set up their own ESCSPs. Practical implications – The paper is valuable for practitioners and investors who are interested in finding out if participation in ESCSPs is financially attractive, and for (governmental) policy makers who may want to be assured that there is sufficient incentive for firms to pursue environmental supplychain sustainability. Originality/value – This is the first paper that captures how financial markets react to announcements of ESCSPs.
Griffin, P. A., Lont, D. H., & Sun, E. Y. (2017). The relevance to investors of greenhouse gas emission disclosures. Contemporary Accounting Research, 34(2), 1265-1297, doi: https://doi.org/10.1111/1911-3846.12298
Abstract: This study finds that investors price firms’ greenhouse gas (GHG) emissions as a negative component of equity value, and this valuation discount does not differ between firms that voluntarily disclose to the Carbon Disclosure Project (CDP) and nondisclosing firms. We derive the GHG emissions for nondisclosers from an estimation model that incorporates firm characteristics and industry. The finding that investors view CDP amounts and estimates of emissions as equally value-relevant suggests that equity values reflect GHG information from channels other than the CDP. An event study of investors’ response to emission-related information in firms’ 8-K filings further supports this finding. Economically, our results suggest that, for the median S&P 500 firm, GHG emissions impose a market-implied equity discount of $79 per ton, representing about one-half of 1 percent of market capitalization.
Abstract: This study examines the impact of voluntary positive corporate social actions on shareholder wealth. After performing an event analysis, the announcement of corporate donations is found to have a significant positive effect on stock prices. Firms producing environmentally-friendly products exhibit a large significant positive reaction on Day 0, however no significant returns accrue over the cumulative time period from -5 to +5. No other announcement of a voluntary corporate social action is found to have a significant impact on shareholder wealth, specifically those firms engaged in recycling or social policy issues.
Gilley, K. M., Worrell, D. L., Davidson III, W. N., & El–Jelly, A. (2000). Corporate environmental initiatives and anticipated firm performance: the differential effects of process-driven versus product-driven greening initiatives. Journal of management, 26(6), 1199-1216, doi: https://doi.org/10.1177/014920630002600607
Abstract: We investigate the influence of environmental initiatives on firms’ anticipated economic performance using an event study methodology. Framing our arguments within an organizational reputation framework, we propose that, due to potential positive effects of these initiatives on firm performance (through increases in reputation), shareholders will react positively to announced environmental initiatives. Contrary to our hypothesis, we found no overall effect of announced environmental initiatives on stock returns. However, our findings indicate that reactions to product-driven initiatives are significantly different than reactions to process-driven ones.
Abstract: Event study methodology is used to examine the wealth effects, or stock price reactions, to corporate announcements of green marketing activities. Two procedures for measuring stock price reactions and two different tests of significance are used in the study. The results for the sample of 73 firms show that the market value for the average firm in the sample declines by 3.14% during the period from 10 days prior to 10 days after the news is announced. Announcements related to green products, recycling efforts, and appointments of environmental policy managers result in insignificant stock price reactions. However, announcements for green promotional efforts produce significantly negative stock price reactions. Sampling by financial and operational characteristics shows that firms with higher growth in earnings, larger firms, and firms with higher advertising-to-sales ratios experience relatively less negative stock price reactions. Managerial implications of the results and directions for future research are also presented.
Halme, M., & Niskanen, J. (2001). Does corporate environmental protection increase or decrease shareholder value? The case of environmental investments. Business Strategy and the Environment, 10(4), 200-214, doi: https://doi.org/10.1002/bse.290
Abstract: This study examines share price effects of environmental investments using data from the Finnish forest industry from 1970 to 1996. The results indicate that the instantaneous market reaction is negative, and that the larger the investment, the larger the fall in prices. However, contrary to the view that corporate actions have a permanent effect on firm value, we observe rapid price recovery after the instantaneous negative reaction. This may support a hypothesis that environmental investments create goodwill for the investing firms and are thus not negative net present value investments. Unexpectedly, we find that the instantaneous negative market reaction was stronger in the most recent sample years. Explanations for this finding relate to the slowness of institutional change within the financial community as well as to the growing share of international investors seeking short‐term holding gains. In conclusion, it appears that not only finance theory but also notions from institutional theory and corporate environmental management literature are needed to explain stock price behaviour in conjunction with environmental investments.
Abstract: This paper investigates how stock prices respond to the release of the environmental management ranking by using a standard event study methodology. Examining top 30 manufacturing companies in the environmental management ranking published by Nihon Keizai Shimbun (Nikkei newspaper) from 1998 to 2005, we find that stock prices on the whole did not respond significantly to the release of the ranking within a three-day event window. Moreover, stock prices of companies that experienced a downgrade increased significantly, while those that experienced an upgrade decreased significantly.
Abstract: This work adds to the recent debate in corporate social responsibility (CSR) and its effects on performance and firm value. By analysing Spanish companies participating in the IBEX-35 stock-exchange index, this paper empirically tests whether there is a significant price reaction to environmental friendly announcements. Using event studies methodology, the distinction among sectors allows for a better understanding of investors reaction. Results show first, that investors do act in response to this kind of practices and second, that the sign of their reaction depends crucially on the business of the firm and the sector where it operates. In this sense, results may help in reconciling the opposite views regarding the effects of CSR policies.
Abstract: Although firms have been taking green supply chain management (GSCM) initiatives, it is not known whether they create value for firms. We analyze 104 announcements related to GSCM using an event study, and determine what causes statistically significant gain in stock prices for these firms. Manufacturing firms, firms with high R&D expenses, and early adopters show a strong increase in stock prices on the day of the announcement. At the same time, small firms, firms not well-known for taking green initiatives, as well as firms that are low in growth potential considerably surprise the market when they make such announcements.
Ba, S., Lisic, L. L., Liu, Q., & Stallaert, J. (2013). Stock market reaction to green vehicle innovation. Production and Operations Management, 22(4), 976-990, doi: https://doi.org/10.1111/j.1937-5956.2012.01387.x
Abstract: We study the stock market reaction to announcements of global green vehicle innovation over a 14‐year time span (1996–2009) using the event study methodology. We document that the stock market generally reacts positively to automakers’ announcements of environmental innovations, consistent with prior research on the wealth effects of innovation announcements. Our results indicate that crucial green product development decisions such as innovation type and market segment choices exert direct influence on a firm’s market value. These results hold after controlling for firm size, leverage, profitability, R&D intensity, and oil price changes.
Wassmer, U., Cueto, D. C., & Switzer, L. N. (2014). The effect of corporate environmental initiatives on firm value: Evidence from fortune 500 firms. M@ n@ gement, 17(1), 1-19, doi: https://doi.org/10.3917/mana.171.0001
Abstract: When do firms derive value from investing in environmental initiatives (CEIs)? We examine stock market responses to the announcements of 183 CEIs by 71 Fortune 500 firms during the period 2002 to 2008. We find that the stock market reacts positively to such announcements but does not react differently to CEIs concerning a firm’s inputs, throughputs, and outputs. We also find that there is an inverted U-shaped relationship between the timing of a CEI and the abnormal stock market return following its announcement. Overall, this study shows that timing is a relevant explanatory factor for the value firms derive from investing in environmental action.
Lam, H. K., Yeung, A. C., Cheng, T. C. E., & Humphreys, P. K. (2016). Corporate environmental initiatives in the Chinese context: Performance implications and contextual factors. International Journal of Production Economics, 180, 48-56, doi: https://doi.org/10.1016/j.ijpe.2016.06.020
Abstract: Although a number of studies have been conducted on the relationship between environmental management and firm performance ,most of them are conducted in the Western context. Due to the unique social and economic environments in China, the performance implications of environmental management might be quite different in the Chinese context. We examine the impact of corporate environmental initiatives (CEIs) on the market value of firms in China. We find that, in contrast to the findings in the Western context, Chinese investors react negatively to CEI announcements. The negative reaction is more significant when the announcements are related to processes rather than products, and for state-owned enterprises rather than privately-owned corporations. However, there is no difference whether the CEI is self-declared or third-party endorsed. Overall, our research indicates that Chinese investors consider CEIs to be in conflict with shareholder interest. Inparticular, CEIs in state-owned enterprises might be considered by investors as signals that firms need to sacrifice profits to shoulder more social responsibility.
Abstract: Many businesses increasingly use strategic partnerships to manage corporate environmental agendas. However, how value is created in green partnerships remains largely unexplored. To address this gap, the authors examine the effects of announcements of green partnerships (marketing versus technology) on shareholder value. It is argued that in green partnerships firms leverage marketing and technology-related capabilities for value-enhancing purposes. The results show that announcements of green marketing partnerships have an immediate positive and significant effect on shareholder value, whereas announcements of green technology partnerships produce an immediate negative and significant effect. Nevertheless, green technology partnerships can accrue positive returns, but over a longer-term(1 year) period. In dirtier industries, it is more difficult to generate positive returns to green partnerships. Counterintuitively, though, in highpolluting industries, firms having a history of positive environmental performance experience lower financial gains from announcements of green partnerships than firms that were less environmentally responsible in the past.
Byrd, J., & Cooperman, E. S. (2018). Investors and stranded asset risk: Evidence from shareholder responses to carbon capture and sequestration (CCS) events. Journal of Sustainable Finance & Investment, 8(2), 185-202, doi: https://doi.org/10.1080/20430795.2017.1418063
Abstract: To avoid catastrophic climate change risk, the case for fossil fuel reserves not being burned has become stronger. This is particularly the case for coal, as the highest emitter of CO2 per unit of energy, with large portions of coal reserves likely to become stranded assets, posing significant risk to investors. Technology in the past has come to the rescue, so investor valuations may depend on perceptions for the success of technology in reducing stranded asset risk. We examine whether coal company shareholders perceive coal as a technologically stranded asset by studying shareholder reactions to news about CCS (carbon capture and sequestration) technology breakthroughs and setbacks. We find significant positive reactions to CCS breakthroughs, but no reaction for setbacks. This suggests investors have embedded expectations of stranded asset risk into their valuations, but also recognize the significance of successful CCS technology development and deployment for the economic prospects of the coal industry.
Robinson, J., Glean, A., & Moore, W. (2018). How does news impact on the stock prices of green firms in emerging markets?. Research in International Business and Finance, 45, 446-453, doi: https://doi.org/10.1016/j.ribaf.2017.07.176
Abstract: Firms around the globe have enhanced their green credentials as a means of increasing competitiveness and improving firm performance. The literature on firms and news suggests that stock prices of most firms tends to be very responsive to news items in the short-term. However, many green companies make investments or are working in industries where the payoffs are likely to be obtained more in the medium-term. There is therefore good reason to believe that the stock prices of these firms would be less responsive to daily news items. Using a database of green firms in emerging markets, the study finds that news can impact on daily returns of green companies. However, the effects of this news does not seem to be long-lasting and was not observed across the majority of firms considered.