The Relevance of Environmental Disclosures for Investors and Other Stakeholder Groups: Are Such Disclosures Incrementally Informative?

41 Pages Posted: 6 Oct 2010  

Peter Clarkson

University of Queensland - Business School; Simon Fraser University (SFU) - Beedie School of Business; Financial Research Network (FIRN)

Xiaohua Fang

Georgia State University - J. Mack Robinson College of Business

Yue Li

University of Toronto - Joseph Rotman School of Management

Gordon D. Richardson

University of Toronto - Rotman School of Management

Date Written: October 5, 2010

Abstract

This study examines the impact of voluntary environmental disclosure on the cost of equity capital and firm value, and on the public perception about a firm’s environmental performance. A salient feature of the study is that our analysis controls for corporate environmental performance using actual toxic emissions data and for firms’ general disclosure propensity. We measure voluntary environmental disclosures in standalone environmental reports, CSR reports, and corporate web sites using a disclosure index consistent with the Global Reporting Initiative disclosure framework. Using a sample of firms from the five most polluting industries in the U.S., we find that voluntary environmental disclosures are incrementally informative for investors over current toxic emissions data in our firm valuation analyses. We also find that investors appear to use toxic emissions data to assess the firm risks and unbooked future environmental liabilities. In addition, we find that voluntary environmental disclosure is positively associated with the Janis-Fadner coefficient, consistent with voluntary environmental disclosure enhancing non-investor stakeholder perception about firms’ environmental performance. However, we do not find evidence that voluntary environmental disclosures affects firm’s cost of equity capital.

Keywords: environmental disclosure, environmental performance, cost of equity capital, valuation, stakeholder sentiment

JEL Classification: M41

Suggested Citation

Clarkson, Peter and Fang, Xiaohua and Li, Yue and Richardson, Gordon D., The Relevance of Environmental Disclosures for Investors and Other Stakeholder Groups: Are Such Disclosures Incrementally Informative? (October 5, 2010). Available at SSRN: https://ssrn.com/abstract=1687475 or http://dx.doi.org/10.2139/ssrn.1687475

Peter Clarkson (Contact Author)

University of Queensland - Business School ( email )

Brisbane, Queensland 4072
Australia

Simon Fraser University (SFU) - Beedie School of Business ( email )

8888 University Drive
Burnaby, British Colombia V5A 1S6
Canada

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Xiaohua Fang

Georgia State University - J. Mack Robinson College of Business ( email )

P.O. Box 4050
Atlanta, GA 30303-3083
United States
404-413-7235 (Phone)

Yue Li

University of Toronto - Joseph Rotman School of Management ( email )

Joseph Rotman School of Management
105 St. George Street
Toronto, Ontario M5S 3E6
Canada
416-978-0857 (Phone)
416-971-3048 (Fax)

Gordon D. Richardson

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6
Canada
416-946-8601 (Phone)
416-971-3048 (Fax)

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