Skip to main content
Erschienen in:

27.06.2023

Does the market reward firms for being more green or less brown?

verfasst von: Yifan Liu, Leyuan You

Erschienen in: Journal of Economics and Finance | Ausgabe 3/2023

Einloggen

Aktivieren Sie unsere intelligente Suche, um passende Fachinhalte oder Patente zu finden.

search-config
loading …

Abstract

This paper examines whether the market rewards firms for superior green performance or for being less brown. It finds that the market punishes brown firms and rewards them for improving environmental performance but does not pay a premium for green firms and does not punish green firms for deteriorating environmental performance. Brown firms have greater extreme losses due to elevated environmental risks. Increasing environmental related investments is associated with reduced risk, increased firm value for brown firms but decreased firm value for green firms. Overall, results in this paper indicate that market reward firms for reducing exposure to environmental risks but not for being green.

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

  • über 102.000 Bücher
  • über 537 Zeitschriften

aus folgenden Fachgebieten:

  • Automobil + Motoren
  • Bauwesen + Immobilien
  • Business IT + Informatik
  • Elektrotechnik + Elektronik
  • Energie + Nachhaltigkeit
  • Finance + Banking
  • Management + Führung
  • Marketing + Vertrieb
  • Maschinenbau + Werkstoffe
  • Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

  • über 67.000 Bücher
  • über 340 Zeitschriften

aus folgenden Fachgebieten:

  • Bauwesen + Immobilien
  • Business IT + Informatik
  • Finance + Banking
  • Management + Führung
  • Marketing + Vertrieb
  • Versicherung + Risiko




Jetzt Wissensvorsprung sichern!

Anhänge
Nur mit Berechtigung zugänglich
Fußnoten
1
Since these environmental performance rankings are based on the firm environmental performance in the previous year, to examine the contemporaneous relation between environmental performance and firm returns (excluding the announcement effect), returns from one year before the rankings are employed. As these environmental rankings are publicized, they become available to the public and retail investors and attract investors attention. To factor in the market response from the public and retail investors as well as market attention, this study also examines the excess returns after the rankings are announced.
 
2
Newsweek has been ranking SP 500 firms every year since 2009 except in the year 2013 due to a change in editorship in that year.
 
3
Since Newsweek use different metrics for environmental scores over time, therefore, environmental rankings are the more relative informational measure for environmental performance. Hence, we do not present the summary statistics for environmental scores.
 
4
GICS industry groups have 24 different industries. They are used in this study because firms are more evenly distributed in GICS sectors than other classification systems such as SIC one digit or two digits codes.
 
5
The adjusted market model uses abnormal returns defined in excess of CRSP value-weighted market return, instead of SP 500 return. The market model uses abnormal returns defined according to the CAPM.
 
6
The adjusted market model shows positive excess returns for all ranking portfolios except portfolio 10, and the four-factor model indicates negative excess returns for all ranking portfolios. This difference is mostly due to the size factor in the four-factor model. Since our sample covers SP 500 firms, which are large firms and tend to have lower returns than small firms. Hence, the excess returns from four-factor model after adjusting for size are negative for these large firms. However, our focus here is on the variation pattern of excess returns, which is qualitatively similar between the two models.
 
7
We focus on environmental rankings since their values are more consistent than environmental scores. Environmental scores are calculated using different metrics over the sample period.
 
8
We have tried the top(bottom) 25/50/75/100/125/150 firms and find that the top 25 and 50 firms have significant results, but not the top(bottom) 75 or higher numbers. Hence, we use the top and bottom 50 firms as proxies for green and brown firms.
 
9
Examining excess returns over one year before the announcement dates reflects the contemporaneous relation between environmental performance and firm performance per se, excluding the announcement effect. Employing excess returns over the event year incorporates the investor attention effect and responses from small investors. Examining excess returns over the event year also reduces the contamination effect from environmental rankings in previous year or the next year. To investigate market reaction to the announcement of environmental rankings, this paper employs event studies.
 
10
RD expense from the year before ranking is used to reflect the lagged effect of RD investment on Tobin’s Q.
 
11
Environmental ranking does show a significant and positive relation with Tobin’s Q in firm fixed effect model, however, this relation lost its significance after green and brown dummies are added.
 
12
We also compared profit margin and return on equity between decile 1 and 10 and do not find significant differences. Hence, the low market performance for firms in decile 10 is not due to low profitability.
 
13
Almost all firms’ rankings change from year to year. The average in the absolute value of changes in rankings from year to year is 67 with a standard deviation of 69.
 
Literatur
Zurück zum Zitat Amato LH, Amato CH (2012) Environmental policy, rankings and stock values. Bus Strateg Environ 21(5):317–325CrossRef Amato LH, Amato CH (2012) Environmental policy, rankings and stock values. Bus Strateg Environ 21(5):317–325CrossRef
Zurück zum Zitat Andrei D, Hasler M (2015) Investor attention and stock market volatility. Rev Financ Stud 28(1):33–72CrossRef Andrei D, Hasler M (2015) Investor attention and stock market volatility. Rev Financ Stud 28(1):33–72CrossRef
Zurück zum Zitat Antunovich P, Laster D (2003) Are good companies bad investments? J Investing 12:53–65CrossRef Antunovich P, Laster D (2003) Are good companies bad investments? J Investing 12:53–65CrossRef
Zurück zum Zitat Bali TG, Gokcan S, Liang B (2007) Value at risk and the cross-section of hedge fund returns. J Bank Financ 31:1135–166CrossRef Bali TG, Gokcan S, Liang B (2007) Value at risk and the cross-section of hedge fund returns. J Bank Financ 31:1135–166CrossRef
Zurück zum Zitat Chan PT, Walter T (2014) Investment performance of “environmentally-friendly” firms and their initial public offers and seasoned equity offers. J Bank Finance 44:177–188CrossRef Chan PT, Walter T (2014) Investment performance of “environmentally-friendly” firms and their initial public offers and seasoned equity offers. J Bank Finance 44:177–188CrossRef
Zurück zum Zitat Da Z, Engelberg J, Gao P (2011) In search of attention. J Financ 66(5):1461–1499CrossRef Da Z, Engelberg J, Gao P (2011) In search of attention. J Financ 66(5):1461–1499CrossRef
Zurück zum Zitat Fernando CS, Sharfman MP, Uysal VB (2017) Corporate environmental policy and shareholder value: Following the smart money. J Financ Quant Anal 52:2023–2051CrossRef Fernando CS, Sharfman MP, Uysal VB (2017) Corporate environmental policy and shareholder value: Following the smart money. J Financ Quant Anal 52:2023–2051CrossRef
Zurück zum Zitat Fernando CS, Uysal VB, Abeysekera AP (2019) An investor perspective on the black box of corporate social responsibility. J Appl Corp Financ 31:92–104CrossRef Fernando CS, Uysal VB, Abeysekera AP (2019) An investor perspective on the black box of corporate social responsibility. J Appl Corp Financ 31:92–104CrossRef
Zurück zum Zitat Gonenc H, Scholtens B (2017) Environmental and financial performance of fossil fuel firms: a closer inspection of their interaction. Ecol Econ 132:307–328CrossRef Gonenc H, Scholtens B (2017) Environmental and financial performance of fossil fuel firms: a closer inspection of their interaction. Ecol Econ 132:307–328CrossRef
Zurück zum Zitat Guenster N, Bauer R, Derwall J, Koedijk K (2011) The economic value of corporate eco-efficiency. Eur Financ Manag 17:679–704CrossRef Guenster N, Bauer R, Derwall J, Koedijk K (2011) The economic value of corporate eco-efficiency. Eur Financ Manag 17:679–704CrossRef
Zurück zum Zitat Karpoff J, Lott JR, Wehrly EW (2005) The reputational penalties for environmental violations: Empirical evidence. J Law Econ 48:653–675CrossRef Karpoff J, Lott JR, Wehrly EW (2005) The reputational penalties for environmental violations: Empirical evidence. J Law Econ 48:653–675CrossRef
Zurück zum Zitat Khan M, Serafeim G, Yoon A (2016) Corporate sustainability: first evidence on materiality. Account Rev 91(6):1697–1724 Khan M, Serafeim G, Yoon A (2016) Corporate sustainability: first evidence on materiality. Account Rev 91(6):1697–1724
Zurück zum Zitat King AA, Lenox MJ (2001) Does it really pay to be green? An empirical study of firm environmental and financial performance. J Ind Ecol 5:105–116CrossRef King AA, Lenox MJ (2001) Does it really pay to be green? An empirical study of firm environmental and financial performance. J Ind Ecol 5:105–116CrossRef
Zurück zum Zitat Klassen RD, McLaughlin CP (1996) The impact of environmental management on firm performance. Manage Sci 42:1199–1214CrossRef Klassen RD, McLaughlin CP (1996) The impact of environmental management on firm performance. Manage Sci 42:1199–1214CrossRef
Zurück zum Zitat Konar S, Cohen MA (2001) Does the market value environmental performance? Rev Econ Stat 83:281–289CrossRef Konar S, Cohen MA (2001) Does the market value environmental performance? Rev Econ Stat 83:281–289CrossRef
Zurück zum Zitat Krüger P (2015) Corporate goodness and shareholder wealth. J Financ Econ 115:304–329CrossRef Krüger P (2015) Corporate goodness and shareholder wealth. J Financ Econ 115:304–329CrossRef
Zurück zum Zitat Larcker DF, Rusticus TO (2010) On the use of instrumental variables in accounting research. J Account Econ 49:186–205CrossRef Larcker DF, Rusticus TO (2010) On the use of instrumental variables in accounting research. J Account Econ 49:186–205CrossRef
Zurück zum Zitat Levi M, Newton D (2016) Flash of green: are environmentally driven stock returns sustainable? Manag Financ 42:1091–1109 Levi M, Newton D (2016) Flash of green: are environmentally driven stock returns sustainable? Manag Financ 42:1091–1109
Zurück zum Zitat Liang B, Park H (2007) Risk measures for hedge funds: a cross-sectional approach. Eur Financ Manag 13:333–370CrossRef Liang B, Park H (2007) Risk measures for hedge funds: a cross-sectional approach. Eur Financ Manag 13:333–370CrossRef
Zurück zum Zitat Lyon TP, Shimshack JP (2015) Environmental disclosure: Evidence from Newsweek’s green companies rankings. Bus Soc 54(5):632–675CrossRef Lyon TP, Shimshack JP (2015) Environmental disclosure: Evidence from Newsweek’s green companies rankings. Bus Soc 54(5):632–675CrossRef
Zurück zum Zitat Narayanan R, Uzmanoglu C (2018) Credit default swaps and firm value. J Financ Quant Anal 53:1227–1259CrossRef Narayanan R, Uzmanoglu C (2018) Credit default swaps and firm value. J Financ Quant Anal 53:1227–1259CrossRef
Zurück zum Zitat Nofsinger J, Sulaeman J, Varma A (2019) Institutional investors and corporate social responsibility. J Corp Finan 58:700–725CrossRef Nofsinger J, Sulaeman J, Varma A (2019) Institutional investors and corporate social responsibility. J Corp Finan 58:700–725CrossRef
Zurück zum Zitat Padgett RC, Galan JI (2010) The effect of R&D intensity on corporate social responsibility. J Bus Ethics 93(3):407–418CrossRef Padgett RC, Galan JI (2010) The effect of R&D intensity on corporate social responsibility. J Bus Ethics 93(3):407–418CrossRef
Zurück zum Zitat Ramiah V, Martin B, Moosa I (2013) How does the stock market react to the announcement of green policies? J Bank Finance 37:1747–1758CrossRef Ramiah V, Martin B, Moosa I (2013) How does the stock market react to the announcement of green policies? J Bank Finance 37:1747–1758CrossRef
Zurück zum Zitat Servaes H, Tamayo A (2013) The impact of corporate social responsibility on firm value: the role of customer awareness. Manage Sci 59:1045–1061CrossRef Servaes H, Tamayo A (2013) The impact of corporate social responsibility on firm value: the role of customer awareness. Manage Sci 59:1045–1061CrossRef
Zurück zum Zitat Sharfman MP, Fernando CS (2008) Environmental risk management and the cost of capital. Strateg Manag J 29:569–592CrossRef Sharfman MP, Fernando CS (2008) Environmental risk management and the cost of capital. Strateg Manag J 29:569–592CrossRef
Metadaten
Titel
Does the market reward firms for being more green or less brown?
verfasst von
Yifan Liu
Leyuan You
Publikationsdatum
27.06.2023
Verlag
Springer US
Erschienen in
Journal of Economics and Finance / Ausgabe 3/2023
Print ISSN: 1055-0925
Elektronische ISSN: 1938-9744
DOI
https://doi.org/10.1007/s12197-023-09633-y

Weitere Artikel der Ausgabe 3/2023

Journal of Economics and Finance 3/2023 Zur Ausgabe

Premium Partner