Corporate Environmental Policy and Shareholder Value: Following the Smart Money

66 Pages Posted: 25 Aug 2017

See all articles by Chitru S. Fernando

Chitru S. Fernando

University of Oklahoma - Michael F. Price College of Business

Mark Sharfman

University of Oklahoma - Michael F. Price College of Business

Vahap Bülent Uysal

University of Oklahoma

Multiple version iconThere are 2 versions of this paper

Date Written: August 23, 2017

Abstract

We examine the value consequences of corporate social responsibility through the lens of institutional shareholders. We find a sharp asymmetry between corporate policies that mitigate the firm’s exposure to environmental risk and those that enhance its perceived environmental friendliness (“greenness”). Institutional investors shun stocks with high environmental risk exposure, which we show have lower valuations as predicted by risk management theory. These findings suggest that corporate environmental policies that mitigate environmental risk exposure create shareholder value. In contrast, firms that increase greenness do not create shareholder value and are also shunned by institutional investors.

Keywords: Environmental risk management, corporate social responsibility, socially responsible investing, institutional ownership, analyst coverage, firm value

JEL Classification: D71, G11, G12, G32, Q50

Suggested Citation

Fernando, Chitru S. and Sharfman, Mark P. and Uysal, Vahap B., Corporate Environmental Policy and Shareholder Value: Following the Smart Money (August 23, 2017). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming. Available at SSRN: https://ssrn.com/abstract=3025194 or http://dx.doi.org/10.2139/ssrn.3025194

Chitru S. Fernando (Contact Author)

University of Oklahoma - Michael F. Price College of Business ( email )

Adams Hall
307 West Brooks Street
Norman, OK 73019-4004
United States
405-325-2906 (Phone)
405-325-7688 (Fax)

HOME PAGE: http://faculty-staff.ou.edu/F/Chitru.Fernando-1/

Mark P. Sharfman

University of Oklahoma - Michael F. Price College of Business ( email )

Norman, OK
United States

HOME PAGE: http://faculty-staff.ou.edu/S/Mark.P.Sharfman-1/

Vahap B. Uysal

University of Oklahoma ( email )

307 West Brooks
Norman, OK 73019-4004
United States
405-325 5672 (Phone)

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