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Voluntary corporate environmental initiatives and shareholder wealth

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  • Fisher-Vanden, Karen
  • Thorburn, Karin S.

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.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Environmental Economics and Management.

Volume (Year): 62 (2011)
Issue (Month): 3 ()
Pages: 430-445

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Handle: RePEc:eee:jeeman:v:62:y:2011:i:3:p:430-445

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Web page: http://www.elsevier.com/locate/inca/622870

Related research

Keywords: Corporate social responsibility; Environmentally responsible investing; Climate change; Greenhouse gas emissions; Capital expenditures; Shareholder wealth;

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References

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Citations

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Cited by:
  1. Will Gans & Beat Hintermann, 2011. "Market Effects of Voluntary Climate Action by Firms: Evidence from the Chicago Climate Exchange," CESifo Working Paper Series 3445, CESifo Group Munich.
  2. Oberndorfer, Ulrich & Schmidt, Peter & Wagner, Marcus & Ziegler, Andreas, 2013. "Does the stock market value the inclusion in a sustainability stock index? An event study analysis for German firms," Journal of Environmental Economics and Management, Elsevier, vol. 66(3), pages 497-509.
  3. Ulrich Oberndorfer & Marcus Wagner & Andreas Ziegler, 2011. "Does the Stock Market Value the Inclusion in a Sustainability Stock Index? An Event Study Analysis for German Firms," MAGKS Papers on Economics 201130, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  4. Thomas Lyon & A. Montgomery, 2013. "Tweetjacked: The Impact of Social Media on Corporate Greenwash," Journal of Business Ethics, Springer, vol. 118(4), pages 747-757, December.
  5. Janick Christian Mollet & Andreas Ziegler, 2012. "Is Socially Responsible Investing Really Beneficial? New Empirical Evidence for the US and European Stock Markets," MAGKS Papers on Economics 201228, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  6. André Betzer & Markus Doumet & Ulf Rinne, 2011. "How Policy Changes Affect Shareholder Wealth: The Case of the Fukushima Daiichi Nuclear Disaster," Schumpeter Discussion Papers sdp11011, Universitätsbibliothek Wuppertal, University Library.
  7. Aktas, Nihat & de Bodt, Eric & Cousin, Jean-Gabriel, 2011. "Do financial markets care about SRI? Evidence from mergers and acquisitions," Journal of Banking & Finance, Elsevier, vol. 35(7), pages 1753-1761, July.
  8. Lioui, Abraham & Sharma, Zenu, 2012. "Environmental corporate social responsibility and financial performance: Disentangling direct and indirect effects," Ecological Economics, Elsevier, vol. 78(C), pages 100-111.
  9. Lyon, Thomas & Lu, Yao & Shi, Xinzheng & Yin, Qie, 2013. "How do investors respond to Green Company Awards in China?," Ecological Economics, Elsevier, vol. 94(C), pages 1-8.

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