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Does the stock market value corporate environmental performance? Some perils of static regression models

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  • Kazumi Endo

Abstract

Intangible assets not only help firms gain competitive advantages but also enable such advantages to persist when firms are not subject to imitation. Given that expenditure on environmental practices is a part of intangible assets, the absence of a dynamic perspective is a major impediment to the further development of the empirical economics of management. By exploiting fine‐grained measures of research and development assets and patent citations, this study isolates the value‐creating effect of corporate environmental performance through a dynamic lens. Using data from a balanced panel of Japanese manufacturing firms, a positive relationship between corporate environmental performance and firm value is observed even after addressing endogeneity. However, this relationship becomes statistically insignificant once dynamic panel data models are used to control for profit persistence. The results suggest that the use of static regression models can lead to the premature conclusion that it pays to be “green.”

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  • Kazumi Endo, 2019. "Does the stock market value corporate environmental performance? Some perils of static regression models," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 26(6), pages 1530-1538, November.
  • Handle: RePEc:wly:corsem:v:26:y:2019:i:6:p:1530-1538
    DOI: 10.1002/csr.1767
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    4. Zhenjie Wang & Jiewei Zhang, 2023. "Nexus between corporate environmental performance and corporate environmental responsibility on innovation performance," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 25(10), pages 11645-11672, October.
    5. Yuan Chen & Vinod Singhal & Qinghua Zhu, 2021. "Environmental policies and financial performance: stock market reaction to firms for their proactive environmental practices recognized by governmental programs," Business Strategy and the Environment, Wiley Blackwell, vol. 30(4), pages 1548-1562, May.
    6. Iñaki Heras‐Saizarbitoria & Olivier Boiral & Alberto Díaz de Junguitu, 2020. "Environmental management certification and environmental performance: Greening or greenwashing?," Business Strategy and the Environment, Wiley Blackwell, vol. 29(6), pages 2829-2841, September.
    7. Riccardo Rodella & Maria Rosa De Giacomo, 2023. "How do financial markets reward companies tackling climate change concerns? A natural experiment based on the Brexit referendum," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 30(2), pages 979-990, March.
    8. Abdelmohsen A. Nassani & Zahid Yousaf & Magdalena Radulescu & Mohamed Haffar, 2022. "Environmental Performance through Environmental Resources Conservation Efforts: Does Corporate Social Responsibility Authenticity Act as Mediator?," Sustainability, MDPI, vol. 14(4), pages 1-16, February.
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