IDEAS home Printed from https://ideas.repec.org/a/eee/jomega/v41y2013i2p195-206.html
   My bibliography  Save this article

Does the market value corporate response to climate change?

Author

Listed:
  • Hsu, Audrey Wen-hsin
  • Wang, Tawei

Abstract

Motivated by the controversial debate on mandatory reductions of greenhouse gases in the U.S., this study explores whether the market values corporate response to tackle carbon dioxide emissions. We measure corporate responses using the measure of media tone based on the positive and negative words in each news article. Our results show that the market reacts favorably to the negative media exposure of corporate response to climate change over the announcement period and the one-year period, which implies that the socially responsible action to tackle climate change is costly. We further find that the positive response is less pronounced for firms from polluting industries and firms with poor environmental performance.

Suggested Citation

  • Hsu, Audrey Wen-hsin & Wang, Tawei, 2013. "Does the market value corporate response to climate change?," Omega, Elsevier, vol. 41(2), pages 195-206.
    • Handle: RePEc:eee:jomega:v:41:y:2013:i:2:p:195-206
    DOI: 10.1016/j.omega.2011.07.009
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0305048312000229
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.omega.2011.07.009?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Shameek Konar & Mark A. Cohen, 2001. "Does The Market Value Environmental Performance?," The Review of Economics and Statistics, MIT Press, vol. 83(2), pages 281-289, May.
    2. Amir, Eli & Lev, Baruch, 1996. "Value-relevance of nonfinancial information: The wireless communications industry," Journal of Accounting and Economics, Elsevier, vol. 22(1-3), pages 3-30, October.
    3. Forbes, William, 2006. "The boys in the bubble: Internet entrepreneurs and stock market value," Omega, Elsevier, vol. 34(5), pages 439-447, October.
    4. Lowe, J & Lewis, D, 1979. "Economic approaches to environmental decision-making," Omega, Elsevier, vol. 7(5), pages 421-430.
    5. Parket, I. Robert & Eilbirt, Henry, 1975. "The practice of business social responsibility: the underlying factors," Business Horizons, Elsevier, vol. 18(4), pages 5-10, August.
    6. Cho, Charles H. & Patten, Dennis M., 2007. "The role of environmental disclosures as tools of legitimacy: A research note," Accounting, Organizations and Society, Elsevier, vol. 32(7-8), pages 639-647.
    7. Paul C. Tetlock & Maytal Saar‐Tsechansky & Sofus Macskassy, 2008. "More Than Words: Quantifying Language to Measure Firms' Fundamentals," Journal of Finance, American Finance Association, vol. 63(3), pages 1437-1467, June.
    8. Karen Palmer & Wallace E. Oates & Paul R. Portney & Karen Palmer & Wallace E. Oates & Paul R. Portney, 2004. "Tightening Environmental Standards: The Benefit-Cost or the No-Cost Paradigm?," Chapters, in: Environmental Policy and Fiscal Federalism, chapter 3, pages 53-66, Edward Elgar Publishing.
    9. Core, John E. & Guay, Wayne & Larcker, David F., 2008. "The power of the pen and executive compensation," Journal of Financial Economics, Elsevier, vol. 88(1), pages 1-25, April.
    10. Stephen Brammer & Chris Brooks & Stephen Pavelin, 2006. "Corporate Social Performance and Stock Returns: UK Evidence from Disaggregate Measures," Financial Management, Financial Management Association International, vol. 35(3), pages 97-116, September.
    11. Adams, Greg & McQueen, Grant & Seawright, Kristie, 1999. "Revisiting the stock price impact of quality awards," Omega, Elsevier, vol. 27(6), pages 595-604, December.
    12. Frederick D. Sturdivant & James L. Ginter & Alan G. Sawyer, 1985. "Managers' conservatism and corporate performance," Strategic Management Journal, Wiley Blackwell, vol. 6(1), pages 17-38, January.
    13. Graham, John R. & Harvey, Campbell R. & Rajgopal, Shiva, 2005. "The economic implications of corporate financial reporting," Journal of Accounting and Economics, Elsevier, vol. 40(1-3), pages 3-73, December.
    14. Mark H. Lang & Russell J. Lundholm, 2000. "Voluntary Disclosure and Equity Offerings: Reducing Information Asymmetry or Hyping the Stock?," Contemporary Accounting Research, John Wiley & Sons, vol. 17(4), pages 623-662, December.
    15. Stern, Joel M, 1974. "Earnings per share is a poor indicator of performance," Omega, Elsevier, vol. 2(1), pages 11-32, February.
    16. Freedman, Martin & Jaggi, Bikki, 1982. "Pollution disclosures, pollution performance and economic performance," Omega, Elsevier, vol. 10(2), pages 167-176.
    17. Wendling, RM & Bezdek, RH, 1989. "Acid rain abatement legislation--Costs and benefits," Omega, Elsevier, vol. 17(3), pages 251-261.
    18. DeFond, Mark L. & Jiambalvo, James, 1994. "Debt covenant violation and manipulation of accruals," Journal of Accounting and Economics, Elsevier, vol. 17(1-2), pages 145-176, January.
    19. Francis, J & Schipper, K, 1999. "Have financial statements lost their relevance?," Journal of Accounting Research, Wiley Blackwell, vol. 37(2), pages 319-352.
    20. Paul C. Tetlock, 2007. "Giving Content to Investor Sentiment: The Role of Media in the Stock Market," Journal of Finance, American Finance Association, vol. 62(3), pages 1139-1168, June.
    21. Glen Dowell & Stuart Hart & Bernard Yeung, 2000. "Do Corporate Global Environmental Standards Create or Destroy Market Value?," Management Science, INFORMS, vol. 46(8), pages 1059-1074, August.
    22. Common, MS, 1979. "External costs: Myth or rationale for state intervention?," Omega, Elsevier, vol. 7(5), pages 385-397.
    23. Tim Loughran & Bill Mcdonald, 2011. "When Is a Liability Not a Liability? Textual Analysis, Dictionaries, and 10‐Ks," Journal of Finance, American Finance Association, vol. 66(1), pages 35-65, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Wei, Yi-Ming & Mi, Zhi-Fu & Huang, Zhimin, 2015. "Climate policy modeling: An online SCI-E and SSCI based literature review," Omega, Elsevier, vol. 57(PA), pages 70-84.
    2. Jiang, Yan & Luo, Le & Xu, JianFeng & Shao, XiaoRui, 2021. "The value relevance of corporate voluntary carbon disclosure: Evidence from the United States and BRIC countries," Journal of Contemporary Accounting and Economics, Elsevier, vol. 17(3).
    3. Hjort, Ingrid, 2016. "Potential Climate Risks in Financial Markets: A Literature Overview," Memorandum 01/2016, Oslo University, Department of Economics.
    4. Silvana Secinaro & Valerio Brescia & Davide Calandra & Buerhan Saiti, 2020. "Impact of climate change mitigation policies on corporate financial performance: Evidence‐based on European publicly listed firms," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 27(6), pages 2491-2501, November.
    5. Griffin, Paul A. & Lont, David, H. & Pomare, Carol, 2021. "The curious case of Canadian corporate emissions valuation," The British Accounting Review, Elsevier, vol. 53(1).
    6. Xinyu Sun & Amelia Clarke & Adriane MacDonald, 2020. "Implementing Community Sustainability Plans through Partnership: Examining the Relationship between Partnership Structural Features and Climate Change Mitigation Outcomes," Sustainability, MDPI, vol. 12(15), pages 1-20, July.
    7. Oksana Seroka-Stolka, 2023. "Enhancing Environmental Sustainability: Stakeholder Pressure and Corporate CO 2 -Related Performance—An Examination of the Mediating and Moderating Effects of Corporate Decarbonization Strategies," Sustainability, MDPI, vol. 15(19), pages 1-18, September.
    8. Yan Jiang & Le Luo, 2018. "Market reactions to environmental policies: Evidence from China," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 25(5), pages 889-903, September.
    9. Shen, Hongtao & Yang, Qing & Luo, Le & Huang, Nan, 2023. "Market reactions to a cross-border carbon policy: Evidence from listed Chinese companies," The British Accounting Review, Elsevier, vol. 55(1).
    10. Danny Zhao‐Xiang Huang, 2022. "An integrated theory of the firm approach to environmental, social and governance performance," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(S1), pages 1567-1598, April.
    11. Wenting Lu & Naiping Zhu & Jing Zhang, 2021. "The Impact of Carbon Disclosure on Financial Performance under Low Carbon Constraints," Energies, MDPI, vol. 14(14), pages 1-19, July.
    12. Mohammed S. Albarrak & Ngan Duong Cao & Aly Salama & Abdullah A. Aljughaiman, 2023. "Twitter carbon information and cost of equity: the moderating role of environmental performance," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 13(3), pages 693-718, September.
    13. Mohammed S. Albarrak & Marwa Elnahass & Aly Salama, 2019. "The effect of carbon dissemination on cost of equity," Business Strategy and the Environment, Wiley Blackwell, vol. 28(6), pages 1179-1198, September.
    14. Yinka Lydia Emmanuel & Olayinka Adenikinju & Mishelle Doorasamy & Tajueden John Ayoola & Abiodun Oyebamiji Oladejo & Jerry D. Kwarbai & Adegbola Olubukola Otekunrin, 2023. "Carbon Emission Disclosure and Financial Performance of Quoted Nigerian Financial Services Companies," International Journal of Energy Economics and Policy, Econjournals, vol. 13(6), pages 628-635, November.
    15. Mohammed Bouaddi & Mohamed A. K. Basuony & Neveen Noureldin, 2023. "The Heterogenous Effects of Carbon Emissions and Board Gender Diversity on a Firm’s Performance," Sustainability, MDPI, vol. 15(19), pages 1-20, October.
    16. Lee, Ki-Hoon & Min, Byung & Yook, Keun-Hyo, 2015. "The impacts of carbon (CO2) emissions and environmental research and development (R&D) investment on firm performance," International Journal of Production Economics, Elsevier, vol. 167(C), pages 1-11.
    17. Ana Paula Perlin & Clandia Maffini Gomes & Francies Diego Motke & Isak Kruglianskas & Felipe Cavalheiro Zaluski, 2022. "Climate Change Mitigation, Adaptation Practices, and Business Performance in Brazilian Industrial Companies," Sustainability, MDPI, vol. 14(18), pages 1-18, September.
    18. Tzouvanas, Panagiotis & Kizys, Renatas & Chatziantoniou, Ioannis & Sagitova, Roza, 2020. "Environmental disclosure and idiosyncratic risk in the European manufacturing sector," Energy Economics, Elsevier, vol. 87(C).
    19. Muhammad Atif & Md. Samsul Alam & Mohammed Hossain, 2020. "Firm sustainable investment: Are female directors greener?," Business Strategy and the Environment, Wiley Blackwell, vol. 29(8), pages 3449-3469, December.
    20. Pipin Kurnia & D.P. Emrinaldi Nur & Adhitya Agri Putra, 2021. "Carbon Emission Disclosure and Firm Value: A Study of Manufacturing Firms in Indonesia and Australia," International Journal of Energy Economics and Policy, Econjournals, vol. 11(2), pages 83-87.
    21. Christian Lebelhuber & Dorothea Greiling, 2022. "Strategic response to institutional pressures of climate change: an exploration among gas sector companies," Review of Managerial Science, Springer, vol. 16(3), pages 863-905, April.
    22. David C Broadstock & Alan Collins & Lester C Hunt & Konstantinos Vergos, 2014. "Voluntary Disclosure, Greenhouse Gas Emissions and Business Performance: Assessing the First Decade of Reporting," Surrey Energy Economics Centre (SEEC), School of Economics Discussion Papers (SEEDS) 149, Surrey Energy Economics Centre (SEEC), School of Economics, University of Surrey.
    23. Simon Cadez & Albert Czerny & Peter Letmathe, 2019. "Stakeholder pressures and corporate climate change mitigation strategies," Business Strategy and the Environment, Wiley Blackwell, vol. 28(1), pages 1-14, January.
    24. Kittikhun Taechaubol, 2017. "Investor types and trading of the environment, social and governance stocks in the stock exchange of Thailand," Journal of Administrative and Business Studies, Professor Dr. Usman Raja, vol. 3(1), pages 38-48.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Price, S. McKay & Doran, James S. & Peterson, David R. & Bliss, Barbara A., 2012. "Earnings conference calls and stock returns: The incremental informativeness of textual tone," Journal of Banking & Finance, Elsevier, vol. 36(4), pages 992-1011.
    2. Iatridis, George Emmanuel, 2016. "Financial reporting language in financial statements: Does pessimism restrict the potential for managerial opportunism?," International Review of Financial Analysis, Elsevier, vol. 45(C), pages 1-17.
    3. Samy Garas & Osama El-Temtamy, 2020. "The “simultaneous cycle” between corporate social responsibility and firms’ financial performance," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 17(2), pages 39-50, September.
    4. Beattie, Vivien, 2014. "Accounting narratives and the narrative turn in accounting research: Issues, theory, methodology, methods and a research framework," The British Accounting Review, Elsevier, vol. 46(2), pages 111-134.
    5. Renato Camodeca & Alex Almici & Umberto Sagliaschi, 2018. "Sustainability Disclosure in Integrated Reporting: Does It Matter to Investors? A Cheap Talk Approach," Sustainability, MDPI, vol. 10(12), pages 1-34, November.
    6. David F. Larcker & Anastasia A. Zakolyukina, 2012. "Detecting Deceptive Discussions in Conference Calls," Journal of Accounting Research, Wiley Blackwell, vol. 50(2), pages 495-540, May.
    7. Ingrid E. Fisher & Margaret R. Garnsey & Mark E. Hughes, 2016. "Natural Language Processing in Accounting, Auditing and Finance: A Synthesis of the Literature with a Roadmap for Future Research," Intelligent Systems in Accounting, Finance and Management, John Wiley & Sons, Ltd., vol. 23(3), pages 157-214, July.
    8. Siddique, Md Abubakar & Akhtaruzzaman, Md & Rashid, Afzalur & Hammami, Helmi, 2021. "Carbon disclosure, carbon performance and financial performance: International evidence," International Review of Financial Analysis, Elsevier, vol. 75(C).
    9. Durnev, Art & Mangen, Claudine, 2020. "The spillover effects of MD&A disclosures for real investment: The role of industry competition," Journal of Accounting and Economics, Elsevier, vol. 70(1).
    10. José Moneva & Beatriz Cuellar, 2009. "The Value Relevance of Financial and Non-Financial Environmental Reporting," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 44(3), pages 441-456, November.
    11. Call, Andrew C. & Emett, Scott A. & Maksymov, Eldar & Sharp, Nathan Y., 2022. "Meet the press: Survey evidence on financial journalists as information intermediaries," Journal of Accounting and Economics, Elsevier, vol. 73(2).
    12. Baker, H. Kent & Dutta, Shantanu & Saadi, Samir & Zhong, Ligang, 2022. "Does media coverage affect credit rating change decisions?," Journal of Banking & Finance, Elsevier, vol. 145(C).
    13. Dutta, Shantanu & Fuksa, Michel & Macaulay, Ken, 2019. "Determinants of MD&A sentiment in Canada," International Review of Economics & Finance, Elsevier, vol. 60(C), pages 130-148.
    14. Kothari, Pratik & Chance, Don M. & Ferris, Stephen P., 2021. "Bragging rights: Does corporate boasting imply value creation?," Journal of Corporate Finance, Elsevier, vol. 67(C).
    15. Bozzolan, Saverio & Fabrizi, Michele & Mallin, Christine A. & Michelon, Giovanna, 2015. "Corporate Social Responsibility and Earnings Quality: International Evidence," The International Journal of Accounting, Elsevier, vol. 50(4), pages 361-396.
    16. Liu, Baixiao & McConnell, John J. & Xu, Wei, 2017. "The power of the pen reconsidered: The media, CEO human capital, and corporate governance," Journal of Banking & Finance, Elsevier, vol. 76(C), pages 175-188.
    17. Yang Stephanie Liu & Xiaoyan Zhou & Jessica Yang & Andreas Hoepner, 2016. "Corporate Carbon Emission and Financial Performance: Does Carbon Disclosure Mediate the Relationship in the UK?," ICMA Centre Discussion Papers in Finance icma-dp2016-03, Henley Business School, University of Reading.
    18. Blau, Benjamin M. & DeLisle, Jared R. & Price, S. McKay, 2015. "Do sophisticated investors interpret earnings conference call tone differently than investors at large? Evidence from short sales," Journal of Corporate Finance, Elsevier, vol. 31(C), pages 203-219.
    19. Froot, Kenneth & Kang, Namho & Ozik, Gideon & Sadka, Ronnie, 2017. "What do measures of real-time corporate sales say about earnings surprises and post-announcement returns?," Journal of Financial Economics, Elsevier, vol. 125(1), pages 143-162.
    20. Javid Iqbal & Khalid Riaz, 2022. "Predicting future financial performance of banks from management’s tone in the textual disclosures," Quality & Quantity: International Journal of Methodology, Springer, vol. 56(4), pages 2691-2721, August.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jomega:v:41:y:2013:i:2:p:195-206. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/wps/find/journaldescription.cws_home/375/description#description .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.