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Do Financial Analysts Care About Environmental Disclosures in Corporate Annual Reports?

30 Pages Posted: 13 Jul 2015 Last revised: 30 Nov 2015

Habiba Al-Shaer

Newcastle University Business School

A. Salama

Newcastle University (UK) - Business School

Steve Toms

University of Leeds - Leeds University Business School (LUBS); University of Leeds - Division of Accounting and Finance

Date Written: July 12, 2015

Abstract

The paper examines the role of environmental disclosures and their effect on the accuracy of financial analysts’ forecasts. Specifically it examines and compares the effects of the volume and quality of disclosure. In doing so, it distinguishes between ‘greenwash’ and more specific, quantified and comparable disclosures that have the potential to provide more effective market signals. The paper demonstrates that there is a significant negative relationship between the quality of disclosure and analyst forecast error. The mere volume of disclosure meanwhile only adds to forecast accuracy in the absence of quality, and to a lesser degree. Disclosure quality therefore is valuable for investment decision makers when evaluating the financial consequences of firm level environmental policies, and potentially in wider contexts.

Suggested Citation

Al-Shaer, Habiba and Salama, A. and Toms, Steve, Do Financial Analysts Care About Environmental Disclosures in Corporate Annual Reports? (July 12, 2015). Leeds University Business School Working Paper No. 15-03. Available at SSRN: https://ssrn.com/abstract=2629744 or http://dx.doi.org/10.2139/ssrn.2629744

Habiba Al-Shaer

Newcastle University Business School ( email )

Department of Accounting and Finance
5 Barrack Road
Newcastle, NE1 4SE
United Kingdom

Aly Salama

Newcastle University (UK) - Business School ( email )

Newcastle upon Tyne, NE1 4SE
United Kingdom

Steve Toms (Contact Author)

University of Leeds - Leeds University Business School (LUBS) ( email )

Leeds LS2 9JT
United Kingdom

University of Leeds - Division of Accounting and Finance ( email )

Leeds LS2 9JT
United Kingdom

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