Halo Effect or Fallen Angel Effect? Firm Value Consequences of Greenhouse Gas Emissions and Reputation for Corporate Social Responsibility

Posted: 6 Jun 2018

See all articles by Sue A. Cooper

Sue A. Cooper

Salisbury University - Department of Accounting & Legal Studies

K. K. Raman

The University of Texas at San Antonio

Jennifer Yin

University of Texas at San Antonio

Date Written: May 2018

Abstract

Greenhouse gas (GHG) emissions are perceived to have negative consequences for society at large by contributing to potential climate change and represent a potential cash drain from firms from exposure to future regulatory, abatement, and compliance costs. Beginning in 2010, US companies are required to report their GHG emissions to the Environmental Protection Agency (EPA). We utilize these data for 2010–2014 to examine whether the possible adverse firm value impact of these GHG emissions is alleviated or exacerbated by the firm’s reputation for corporate social responsibility. Our findings suggest that there is no halo effect, i.e., a firm’s reputation for social responsibility (as reflected in its CSR score) does not protect the firm from the adverse firm value effects of GHG emissions. Rather, our findings suggest a fallen angel effect, i.e., for any given level of GHG emissions, the higher the firm’s CSR score, the greater the adverse impact on firm value. In other words, the decline in firm value due to the adverse impact of GHG emissions is compounded by the hit to the firm’s reputation for corporate social performance. Our paper contributes to the sparse prior US literature on the firm value effects of GHG emissions. Further, by providing scholarly evidence on the existence of a fallen angel effect, our findings suggest that boards and managers of firms that provide voluntary CSR disclosures cannot afford to be complacent about their GHG emissions.

Keywords: greenhouse house emissions, corporate social responsibility, greenwashing, firm value

JEL Classification: M41, M48

Suggested Citation

Cooper, Sue A. and Raman, K. K. and Yin, Jennifer, Halo Effect or Fallen Angel Effect? Firm Value Consequences of Greenhouse Gas Emissions and Reputation for Corporate Social Responsibility (May 2018). Journal of Accounting and Public Policy, Vol. 37, No. 3, 2018. Available at SSRN: https://ssrn.com/abstract=3186750

Sue A. Cooper

Salisbury University - Department of Accounting & Legal Studies ( email )

1101 Camden Ave
Salisbury, MD 21801
United States

K. K. Raman (Contact Author)

The University of Texas at San Antonio ( email )

One UTSA Circle
San Antonio, TX 78249
United States
210-458-8749 (Phone)

Jennifer Yin

University of Texas at San Antonio ( email )

Department of Accounting
San Antonio, TX 78249
United States
210-458-7090 (Phone)
210-458-4322 (Fax)

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