Voluntary Environmental Disclosure Quality and Firm Value: Further Evidence

Posted: 21 Jan 2011  

Marlene Plumlee

University of Utah - School of Accounting

Darrell Brown

Portland State University - School of Business Administration; Indiana University - Kelley School of Business - Management & Entrepreneurship

Rachel M. Hayes

University of Utah - David Eccles School of Business

Scott Marshall

Portland State University - School of Business Administration

Date Written: December 31, 2010

Abstract

This study examines the relationship between the quality of a firm’s voluntary environmental disclosures and firm value by exploring the relationship between the components of firm value (expected future cash flows and cost of equity) and voluntary environmental disclosure quality. We measure voluntary environmental disclosure quality using a disclosure index consistent with the Global Reporting Initiative disclosure framework for a sample of US firms across five industries. In addition to overall disclosure quality, we consider the type (i.e., hard/soft) and the nature (i.e., positive/neutral/negative) of the disclosure in our analysis. We also include controls for both positive and negative environmental performance. Based on this analysis, we document (1) a positive association between some aspects of voluntary environmental disclosure quality and future expected cash flows, and (2) both a negative and positive association between some aspects of voluntary environmental disclosure quality and a firm’s cost of equity capital. Our findings are consistent with increased voluntary environmental disclosure quality being associated with firm value through both the expected cash flow and cost of equity capital components. The results also highlight the benefit of parsing broader measures (e.g. voluntary disclosure quality) when examining complex relationships.

Suggested Citation

Plumlee, Marlene and Brown, Darrell and Hayes, Rachel M. and Marshall, Scott, Voluntary Environmental Disclosure Quality and Firm Value: Further Evidence (December 31, 2010). Available at SSRN: https://ssrn.com/abstract=1744114

Marlene A. Plumlee (Contact Author)

University of Utah - School of Accounting ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

Darrell Brown

Portland State University - School of Business Administration ( email )

Portland, OR 97207-0751
United States
503-725-3096 (Phone)
503-725-5850 (Fax)

Indiana University - Kelley School of Business - Management & Entrepreneurship ( email )

Bloomington, IN 47405
United States

Rachel M. Hayes

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

Scott Marshall

Portland State University - School of Business Administration ( email )

Portland, OR 97207-0751
United States

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