IDEAS home Printed from https://ideas.repec.org/a/tpr/restat/v83y2001i2p281-289.html
   My bibliography  Save this article

Does The Market Value Environmental Performance?

Author

Listed:
  • Shameek Konar
  • Mark A. Cohen

Abstract

Previous studies that attempt to relate environmental to financial performance have often led to conflicting results due to small samples and subjective environmental performance criteria. We report on a study that relates the market value of firms in the S&P 500 to objective measures of their environmental performance. After controlling for variables traditionally thought to explain firm-level financial performance, we find that bad environmental performance is negatively correlated with the intangible asset value of firms. The average "intangible liability" for firms in our sample is $380 million - approximately 9% of the replacement value of tangible assets. We conclude that legally emitted toxic chemicals have a significant effect on the intangible asset value of publicly traded companies. A 10% reduction in emissions of toxic chemicals results in a $34 million increase in market value. The magnitude of these effects varies across industries, with larger losses accruing to the traditionally polluting industries. © 2001 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

Suggested Citation

  • 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.
  • Handle: RePEc:tpr:restat:v:83:y:2001:i:2:p:281-289
    as

    Download full text from publisher

    File URL: http://www.mitpressjournals.org/doi/pdf/10.1162/00346530151143815
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    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. Konar, Shameek & Cohen, Mark A., 1997. "Information As Regulation: The Effect of Community Right to Know Laws on Toxic Emissions," Journal of Environmental Economics and Management, Elsevier, vol. 32(1), pages 109-124, January.
    2. Cockburn, Iain & Griliches, Zvi, 1988. "Industry Effects and Appropriability Measures in the Stock Market's Valuation of R&D and Patents," American Economic Review, American Economic Association, vol. 78(2), pages 419-423, May.
    3. Arora Seema & Cason Timothy N., 1995. "An Experiment in Voluntary Environmental Regulation: Participation in EPA's 33/50 Program," Journal of Environmental Economics and Management, Elsevier, vol. 28(3), pages 271-286, May.
    4. Jaffe, Adam B, 1986. "Technological Opportunity and Spillovers of R&D: Evidence from Firms' Patents, Profits, and Market Value," American Economic Review, American Economic Association, vol. 76(5), pages 984-1001, December.
    5. Karen Palmer & Wallace E. Oates & Paul R. Portney, 1995. "Tightening Environmental Standards: The Benefit-Cost or the No-Cost Paradigm?," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 119-132, Fall.
    6. Karpoff, Jonathan M & Lott, John R, Jr, 1993. "The Reputational Penalty Firms Bear from Committing Criminal Fraud," Journal of Law and Economics, University of Chicago Press, vol. 36(2), pages 757-802, October.
    7. Hirsch, Barry T, 1991. "Union Coverage and Profitability among U.S. Firms," The Review of Economics and Statistics, MIT Press, vol. 73(1), pages 69-77, February.
    8. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
    9. Hamilton James T., 1995. "Pollution as News: Media and Stock Market Reactions to the Toxics Release Inventory Data," Journal of Environmental Economics and Management, Elsevier, vol. 28(1), pages 98-113, January.
    10. Megna, Pamela & Mueller, Dennis C, 1991. "Profit Rates and Intangible Capital," The Review of Economics and Statistics, MIT Press, vol. 73(4), pages 632-642, November.
    11. Carol J. Simon & Mary W. Sullivan, 1993. "The Measurement and Determinants of Brand Equity: A Financial Approach," Marketing Science, INFORMS, vol. 12(1), pages 28-52.
    12. Hirsch, Barry T & Seaks, Terry G, 1993. "Functional Form in Regression Models of Tobin's q," The Review of Economics and Statistics, MIT Press, vol. 75(2), pages 381-385, May.
    13. R. Schmalensee & R. Willig (ed.), 1989. "Handbook of Industrial Organization," Handbook of Industrial Organization, Elsevier, edition 1, volume 2, number 2.
    14. Barth, Me & Mcnichols, Mf, 1994. "Estimation And Market Valuation Of Environmental Liabilities Relating To Superfund Sites," Journal of Accounting Research, Wiley Blackwell, vol. 32, pages 177-209.
    15. Robert D. Klassen & Curtis P. McLaughlin, 1996. "The Impact of Environmental Management on Firm Performance," Management Science, INFORMS, vol. 42(8), pages 1199-1214, August.
    16. Lindenberg, Eric B & Ross, Stephen A, 1981. "Tobin's q Ratio and Industrial Organization," The Journal of Business, University of Chicago Press, vol. 54(1), pages 1-32, January.
    17. R. Schmalensee & R. Willig (ed.), 1989. "Handbook of Industrial Organization," Handbook of Industrial Organization, Elsevier, edition 1, volume 1, number 1.
    18. Hirschey, M & Weygandt, Jj, 1985. "Amortization Policy For Advertising And Research And Development Expenditures," Journal of Accounting Research, Wiley Blackwell, vol. 23(1), pages 326-335.
    Full references (including those not matched with items on IDEAS)

    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. Greg Filbeck & Raymond Gorman, 2004. "The Relationship between the Environmental and Financial Performance of Public Utilities," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 29(2), pages 137-157, October.
    2. Sandner, Philipp G. & Block, Joern, 2011. "The market value of R&D, patents, and trademarks," Research Policy, Elsevier, vol. 40(7), pages 969-985, September.
    3. McGahan, Anita M. & Silverman, Brian S., 2006. "Profiting from technological innovation by others: The effect of competitor patenting on firm value," Research Policy, Elsevier, vol. 35(8), pages 1222-1242, October.
    4. Villalonga, Belen, 2004. "Intangible resources, Tobin's q, and sustainability of performance differences," Journal of Economic Behavior & Organization, Elsevier, vol. 54(2), pages 205-230, June.
    5. Andreas Ziegler, 2012. "Is it Beneficial to be Included in a Sustainability Stock Index? A Panel Data Study for European Firms," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 52(3), pages 301-325, July.
    6. Anandhi S. Bharadwaj & Sundar G. Bharadwaj & Benn R. Konsynski, 1999. "Information Technology Effects on Firm Performance as Measured by Tobin's q," Management Science, INFORMS, vol. 45(7), pages 1008-1024, July.
    7. Dietrich Earnhart & Lubomir Lizal, 2007. "Does Better Environmental Performance Affect Revenues, Cost, or Both? Evidence From a Transition Economy," William Davidson Institute Working Papers Series wp856, William Davidson Institute at the University of Michigan.
    8. Adam B. Jaffe & Richard G. Newell & Robert N. Stavins, 2000. "Technological Change and the Environment," NBER Working Papers 7970, National Bureau of Economic Research, Inc.
    9. Stefan Ambec & Paul Lanoie, 2007. "When and Why Does It Pay To Be Green?," CIRANO Working Papers 2007s-20, CIRANO.
    10. Michael J. Orlando, 2000. "On the importance of geographic and technological proximity for R&D spillovers : an empirical investigation," Research Working Paper RWP 00-02, Federal Reserve Bank of Kansas City.
    11. Elsayed, Khaled & Paton, David, 2005. "The impact of environmental performance on firm performance: static and dynamic panel data evidence," Structural Change and Economic Dynamics, Elsevier, vol. 16(3), pages 395-412, September.
    12. Rassier, Dylan G. & Earnhart, Dietrich, 2015. "Effects of environmental regulation on actual and expected profitability," Ecological Economics, Elsevier, vol. 112(C), pages 129-140.
    13. Madhu Khanna, 2001. "Non‐Mandatory Approaches to Environmental Protection," Journal of Economic Surveys, Wiley Blackwell, vol. 15(3), pages 291-324, July.
    14. Adam Jaffe & Richard Newell & Robert Stavins, 2002. "Environmental Policy and Technological Change," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 22(1), pages 41-70, June.
    15. Jaffe, Adam B. & Newell, Richard G. & Stavins, Robert N., 2003. "Chapter 11 Technological change and the environment," Handbook of Environmental Economics, in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 1, chapter 11, pages 461-516, Elsevier.
    16. Shah, Syed Zulfiqar Ali & Stark, Andrew W. & Akbar, Saeed, 2009. "The value relevance of major media advertising expenditures: Some U.K. evidence," The International Journal of Accounting, Elsevier, vol. 44(2), pages 187-206, June.
    17. Cañón-de-Francia, Joaquín & Garcés-Ayerbe, Concepción & Ramírez-Alesón, Marisa, 2008. "Analysis of the effectiveness of the first European Pollutant Emission Register (EPER)," Ecological Economics, Elsevier, vol. 67(1), pages 83-92, August.
    18. Ziegler, Andreas & Schröder, Michael, 2006. "What Determines the Inclusion in a Sustainability Stock Index? A Panel Data Analysis for European Companies," ZEW Discussion Papers 06-041, ZEW - Leibniz Centre for European Economic Research.
    19. Hjort, Ingrid, 2016. "Potential Climate Risks in Financial Markets: A Literature Overview," Memorandum 01/2016, Oslo University, Department of Economics.
    20. Soyoung Yoo & Jiyong Eom & Ingoo Han, 2020. "Too Costly to Disregard: The Cost Competitiveness of Environmental Operating Practices," Sustainability, MDPI, vol. 12(15), pages 1-29, July.

    More about this item

    Statistics

    Access and download statistics

    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:tpr:restat:v:83:y:2001:i:2:p:281-289. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://direct.mit.edu/journals .

    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: Ann Olson (email available below). General contact details of provider: https://direct.mit.edu/journals .

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.