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Does environmental management improve enterprise's value? – An empirical research based on Chinese listed companies
Ecological Indicators 51 (2015) 191–196
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Does environmental management improve enterprise’s value? – An empirical research based on Chinese listed companies Song Hang ∗ , Zhao Chunguang Shanghai National Accounting Institute, China
a r t i c l e
i n f o
Article history: Received 22 March 2014 Received in revised form 6 August 2014 Accepted 14 August 2014 Keywords: Environmental management Corporate value Environmental information disclosed
a b s t r a c t The company’s environmental management behaviors can improve the relationship between the company stakeholders, help companies to sustainably develop. But it is more seen as an obligation and cost of the company’s environmental protection in developing countries. So what kind of impact the environmental protection have on the value of the company? Taking Chinese listing Corporation as a sample. This paper analyzes the impact of enterprises’ environmental management and its disclosure on corporate value. We conclude that environmental management excluding independent environment report can improve corporate value. In specific environmental management measures, producing environmental friendly products can help environmental friendly products gain recognition and improve corporate value significantly. © 2014 Elsevier Ltd. All rights reserved.
1. Introduction With the development of economy and society, environmental issues get more and more attention from all sectors, for example, air quality and environmental pollution incidents exposure straightly in major media. We all recognize that the cost of the environmental pollution exchange for economic development is not sustained. The party’s No. 18 conference declares five civilized development path including building economic civilization and ecological civilization. It is the guidelines for the economic development and environmental protection from the national direction level. As the main micro companies, especially large companies inevitably are concerning about the environment issue. Environmental destruction and energy depletion will affect the company’s sustainable development. Any responsible company cannot ignore environmental issues. But environmental protection has obviously externalities and the companies need additional investment, such as higher costs of clean raw material procurement, investment in environmental protection facilities, etc. At the same time, environment protection brought benefits, but most did not get confirmed in the accounting profit, or just get confirmed in the accounting profit, but not linked with environmental protection investment. Therefore, from the traditional concept, environmental protection is often identified as costs, not clear benefits. If economic benefits
∗ Corresponding author. Tel.: +86 2169768245; fax: +86 2169768048. E-mail address: [email protected] (S. Hang). http://dx.doi.org/10.1016/j.ecolind.2014.08.020 1470-160X/© 2014 Elsevier Ltd. All rights reserved.
of environmental protection to the enterprise are insufficient to cover additional costs, companies have no motivation voluntarily to carry on environmental protection. It will not take the initiative, conscious long-term environmental protection. Only under the situation that enterprises would like invest environmental protection to bring economic benefits, which means that environmental protection and economic interests are the same, enterprise will take the initiative and positive obligation to protect the environment. Various circles of society have recognized the idea that enterprises should be accountable for environmental protection. Enterprises have to obey related laws and regulations to protect environment, meanwhile, they need disclose environmental information, which is essential part of environmental management, corporations’ tool to let the public know their environmental protection obligations and a window for communities’ supervision on enterprises’ environmental behaviors. In China, the concept of establishing harmonious society and sustainable development is dramatically rooted, corporate environmental responsibility has gained increasing attention, and stakeholders’ requirement for disclose of environmental information is getting stronger. Laws and regulations in China are gradually expanding supervision on enterprise environment information disclosure, requirement of supervision is improving and supervision process is becoming more standard. Meantime, environmental information disclosure on corporate annual financial reports in China is in increasingly high level (Hongtao and Yuxiaolu 2010), and some companies start to provide independent environmental,
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sustainable development or social responsibility report to disclose enterprises’ environmental information. The company’s environmental management behavior which affects stock prices can be divided into two parts: environmental management practices and environmental information disclosure. Environmental management practices affect the relationship between the company and stakeholders by improving the environment. Environmental information disclosure improves the environment of information superhighway investor, so as to enhance corporate value. Through these two layers, environmental protection behaviors will exert influence on corporate value and investors’ assessment of the company. This paper is an empirical research on the influence in environmental management of corporate value, which includes three questions below: (1) Does environmental management have impact on corporate value? (2) Does independent information disclosure improve firm value? (3) How will specific environmental management measures (including management of polluted environment, recycle of materials harmful to environment, production of environment-friendly products, and adoption of other means to control pollution) affect corporate value?
2. Literature review Early research focused on the study of the relationship between corporate social responsibility and financial performance, but because of the different research methods, variable selection and environmental indicators, the results are not consistent. Waddock and Graves (1997) using a sample of S & P 500 company to study the relationship between environmental management and corporate financial performance by using KLD Social Responsibility Index which is developed by Kinder, Lydenberg, Domini. They found that there was a significant positive correlation between corporate environmental management and cooperate financial performance (ROA). Klassen and McLaughlin (1996) found that environmental management will improve the corporate financial performance by improving operating income and reducing product costs both sides. There are some possible ways to improve operating income: increase market share, generate economies scale; improve production contribution margin; verify environment products or processes. There are some major ways to reduce production costs: First, a good environmental performance may make the company establish a wide range of industries standards to meet their own situation, which can help themselves to be in a better competitive position in the reduction costs area; Second, good environmental performance may make the company be able to better re-use raw materials and energy, thereby increasing production efficiency; Third, good environmental performance may make companies reduce pollution emissions, thus reducing costs in terms of environmental restoration and pollution remove governmental regulations. There are little direct study between environmental management and corporate value, Clarkson et al. (2010)) Using a sample of firms from the five most polluting industries in the U.S., find that voluntary environmental disclosures are incrementally informative for investors over current toxic emissions data in our firm valuation analyses and investors appear to use toxic emissions data to assess the firm risks and unbooked future environmental liabilities. However, they do not find evidence that voluntary an environmental disclosure affects firm’s cost of equity capital. Focusing on the pulp and paper industry and using the Ohlson (1995) levels valuation model, Clarkson et al. (2004) show that the market positively values environmental capital expenditures for good (but not poor) environment performance firms. Plumlee et al. (2009) investigate the relationship between the quality of
a firm’s voluntary environmental disclosure and firm value (cost of equity capital and expected cash flow). They find that disclosure quality is negatively associated with the cost of capital. The study of Ingram (1978) found that in terms of disclosure environmental information, monetization information portfolio income is higher than non-monetary portfolio information; disclosing non-monetary portfolio information are higher return than nondisclosure portfolio information. Berman et al. (1999) studied the relationship between several aspects covered by social responsibility and corporate value. The empirical results show that only the interests of employees and product quality and safety associated with corporate value, while community interests, environmental protection and other aspects of the company’s value have no direct relationship with corporate value. Brammer et al. (2006) analyzed the correlation between environmental indicators and stock returns. They found that there is a significant negative correlation between them. Domestic research started relatively late, social responsibility related research involves the study of environmental issues. Just few research literature focus on environmental aspects, such as Qiulin et al. (2002), Yuqing and Lili (2005), Chen and Ma (2006), Yi and Hongtao (2008). Most scholars support that there is a positive correlation between fulfillment of social responsibility and corporate value. As seen from the above study, environmental issues have been given enough attention, but there is lack of research which is carried out for developing countries such as China, in particular, the relationship between the environmental behavior and corporate value. This paper aims to accelerate the environmental protection behavior through empirical research.
3. Sample and data The samples include Shanghai and Shenzhen A-shares publically disclosed annual report and environmental report from 2007 to 2009. Environmental information disclosure data is collected manually based on annual report on websites of Shanghai and Shenzhen stock exchanges and corporate websites. Financial data and stock profit data are from CSMAR database. Because of the particularity in financial indicators, sample selection criteria are as follows: excluding finance industry firms ST firms; excluding firms lacked of stock price; excluding financial and environmental information data and outliers. Then we obtain 2761 samples finally. The composition of the sample data is as follows Year
Companies amount
2007 2008 2009
777 855 1129
Percentage 28.14% 30.97% 40.89%
Total
2761
100.00%
Descriptive statistics for each variable as shown in the following table. Variable
Mean
Standard deviation
RET EPS BETA PB SIZE ESCORE ESCORE1 ESCORE2 ESCORE3 ESCORE4
−0.0586 0.259309 1.009154 4.772454 21.75226 0.025389 0.00339 0.004394 0.005381 0.012224
0.313302 0.415167 0.224079 4.051207 1.120766 0.035166 0.014539 0.014404 0.015132 0.017292
Sample amount = 2761
Minimum −0.52338 −1.0476 0.430672 0.835494 19.31522 −0.021 −0.048 0 0 0
Maximum 1.18478 1.8228 1.644433 27.40028 25.01807 0.26 0.096 0.072 0.076 0.054
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4. Hypothesis development
Hypothesis H3. Different environmental management methods have different influence on corporate value.
Hypothesis H1. Environmental management is positively correlated with firm value.
In order to meet requirements of the whole stakeholders, enterprises’ environment report contains various aspects of information. Our environmental information assessment system evaluates enterprise environmental management through four two-level indexes, which are: (1) management of polluted environment, (2) recycle of environmental harmful material, (3) production of environment-friendly products, (4) adoption other means to control pollution. The four indexes reflect from different aspects environmental protection behaviors of enterprises. Therefore Hypothesis H3 is proposed: different environmental management methods have different influence on corporate value.
From the cost perspective, there has been research illustrating that environmental protection behaviors can reduce cost of capital. Firstly, environmental protection actions such as high utilization rate of raw materials, waste recycling and energy conservation, can reduce enterprises’ production cost; secondly, environmental protection actions can decrease cost and expense caused by lawsuit, government punishment, environmental protection organizations’ protests, etc.; thirdly, environmental protection behaviors can create sound working environment for employees, which will improve their working efficiency, reduce unit product cost, reduce expense caused by occupational injuries and lawsuits, especially for those industries with terrible working condition. Besides, Hongtao and Yuxiaolu (2010) believes enterprises’ environmental information disclosure could significantly reduce cost of equity capital. In terms of income, study of McGuire et al. (1988) suggests that environmental protection actions can improve enterprises’ image in customers’ heart. However, Klassen and McLaughlin (1996)’s research shows that consumers prefer those environmental friendly products. Moreover, we can find from environmental reports of some American large enterprises that, when they are doing energy conservation and emission reduction work for themselves, they help other companies save energy and gain profit from it. China has established environmental exchange mechanism, and August 5th, 2008 has witnessed that with the founding of Shanghai Energy Exchange and Beijing Environment Exchange, enterprises can purchase and sell environmental resources with approval in normal production and operation activities, which helps realize direct conversion of environmental protection actions and economic benefit. Based on above theories, we believe that (1) considering ethics and morals, some investors would pay particular attention to enterprise social responsibility, and they shall put not only corporate financial performance, but also enterprise environmental protection actions into consideration when they makes decisions; (2) environmental information disclosed by enterprises can be used as substitution variable of economic information, as the enterprise’s environmental protection behaviors will have positive impact on long-term profit generation; (3) corporate social responsibility information can help investors judge supervision cost which the company face potentially including lawsuit, punishment and government regulation. Disclosure of social responsibility information can help the company ease possible sanctions. In view of Hypothesis H1, we suggest that environmental management is positively correlated with firm value. Hypothesis H2. Compared with non-independent disclosure of environment report, enterprises with independent disclosure of environment report values higher. From the perspective of disclosed content, non-independent report is to list out environment information in financial report or supplement financial report, which makes environmental information disclosure dispersive and affects the wholeness and intuitive. While independent environment report list out the environmental information specially, which includes a larger scale of information, wider angle of exhibition and more comprehensive content explained. In terms of disclosure attitude, voluntary disclosure of environmental information can establish the company healthy corporate image and win trust from the communities. Therefore Hypothesis H2 is proposed: enterprises with independent disclosure of environment report values higher.
5. Research design The author adopts regression model approaches on the relationship between environmental management of listed companies with corporate value, namely return based on Ohlson Model with Fama Three-Factors as control variables and add environmental score (ESCORE) as independent variable. The basic model for H1 is as follows: RETi,t = ˇ0 +
ˇ1 EPSi,t ˇ2 BPSi,t + + ˇ3 BETAi,t + ˇ4 SIZEi,t Pi,t−1 Pi,t−1
+ ˇ5 PBi,t + ˇ6 ESCOREi,t + εi,t On the basis of this basic model, the independence factor of whether company’s environment disclosure report is added to the equation dummy variable, in order to test the influence of independent and non-independent disclosure on firm value. The model for H2 is as follows: RETi,t = ˇ0 +
ˇ1 EPSi,t ˇ2 BPSi,t + + ˇ3 BETAi,t + ˇ4 SIZEi,t Pi,t−1 Pi,t−1
+ ˇ5 PBi,t + ˇ6 ESCOREi,t + ˇ7 DUMMYINDEP + ˇ8 (DUMMYINDEP × ESOREi,t ) + ˇ9 DUMMYYEAR + ˇ10 DUMMYPOL + εi,t Lastly, secondary indexes of environmental score is added to the model as proxy variable, which are “management of polluted environment”(ESCORE1), “recycle of environmental harmful material” (ESCORE2), “production of environment-friendly products” (ECORE3), “adoption other means to control pollution” (ESCORE4). The model for H3 is as follows: RETi,t = ˇ0 +
ˇ1 EPSi,t ˇ2 BPSi,t + + ˇ3 BETAi,t + ˇ4 SIZEi,t Pi,t−1 Pi,t−1
+ ˇ5 PBi,t + ˇ6 ESCOREi,t + ˇ7 ESCORE2i,t + ˇ8 ESCORE3i,t + ˇ9 ESCORE4i,t + ˇ10 INDEPENi,t + ˇ11 DUMMYYEAR + ˇ12 DUMMYPOL + εi,t
6. Description of variables 6.1. Dependent variable RETi,t is the buy and hold return of public company i from April 30th of the t year(2007, 2008, 2009) to April 30th of t + 1 year.
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6.2. Independent variable (1) Pi,t−1 means the adjusted share price at the beginning of the period. (2) EPSi,t is earnings per-share of the public company i when the t = December 31st, 2007 or December 31st, 2008 or December 31st, 2009. (3) BPSi,t means net asset per-share of the public company i when the t = December 31st, 2007 or December 31st, 2008 or December 31st, 2009. (4) ESCOREi,t is environmental score of the public company i when the t = December 31st, 2007 or December 31st, 2008 or December 31st, 2009. (5) ESCORE1 is the secondary index: management of polluted environment. (6) ESCORE2 is the secondary index: recycle of materials harmful to environment. (7) ESCORE3 is the secondary index: production of environmentalfriendly products. (8) ESCORE4 is the secondary index: adoption of other means to control pollution. ESCORE adopt annual reports of listed companies and social responsibility report in order to compile its own data. The data processing use SA8000 standard, GRI3 reporting guidelines and the UN “Global Compact” action standards as the reference. Environmental factors are divided into four indicators. It use expert scoring AHP (AHP) to determine the weight of each index, then get comprehensive ESCORE and four sub-indices. 6.3. Dummy variable (1) DUMMYINDEP shows whether disclosure of environmental information is independent of financial report. If environmental information disclosure of the company is independent from financial report, then DummyINDEP = 1, else DummyINDEP = 0. (2) DUMMYYEAR represents the dummy of the sample company. (3) DUMMYPOL stands for dummy variable of pollution degree of the industry. 6.4. Control variable (1) SIZEi,t is the corporate scale of the public company i when the t = December 31st, 2008 or December 31st, 2009, which is the natural logarithm of total assets. (2) BETAi,t means monthly Beta of sub-market of the listed company i when the t = December 31st, 2007 or December 31st, 2009 or December 31st, 2009. When calculating beta for Shanghai stocks, market return of Shanghai shall be employed. It is the same for Shenzhen stocks. (3) PBi,t stands for PB Ratio of the public company i when the t = December 31st, 2007 or December 31st, 2009 or December 31st, 2009.
value is higher, and vice verse. Hypothesis H1 that environmental management can improve corporate value is supported. Main regression result* Variable
Coefficients
Std. err.
T
P>t
VIF
EPS/P−1 BPS/P−1 PB SIZE BETA ESCORE
1.444473*** 0.591246*** 0.022633*** −0.05385*** 0.012867 0.000357** F(5,2755) = 78.87 Adj-R2 = 0.1286
0.173681 0.045266 0.00161 0.005755 0.025934 0.000168 Prob > F = 0 N = 2761
8.32 13.06 14.06 −9.36 0.5 2.13
0 0 0 0 0.62 0.034
1.15 1.52 1.37 1.34 1.09 1.12
* ** ***
Statistical significance at the 10% level. Statistical significance at the 5% level. Statistical significance at the 1% level.
(2) Hypothesis H2: independent disclosure has influence on corporate value Regression result above has suggested that the coefficient of environmental information score (ESCORE) is positive, significant at 5% level, it means environmental management can improve corporate value. Coefficient of DUMMYINDEP × ESCOREi,t is significantly negative. It illustrates that with the same environmental score, nonindependent environment has greater influence on firm value than independent information. Namely independent disclosure of environmental report does not improve firm value, just the verse, which does not support Hypothesis H2. Then we investigate sub-samples of independent and nonindependent disclosure separately. The result shows coefficient of environment score (ESCORE) is not significant in the independent disclosure sub-sample. However, in the group of non-independent disclosure, coefficient of environment score (ESCORE) is significantly positive. It illustrates that independent report of enterprises’ environmental management does not improve corporate value, while non-independent report of corporate environmental information improves firm value. Regression result of model three* Variable EPS/P−1 BPS/P−1 PB SIZE BETA ESCORE DUMMYINDEP DUMMYINDEP × ESCORE DUMMYYEAR=2008 DUMMYYEAR=2009 DUMMYPOL=1 DUMMYPOL=2
* ** **
Coefficients
Std. error
t
P>t
VIF
1.801108 0.772859*** 0.033507*** −0.0472*** 0.007666 0.000715*** −0.0283 −0.72721**
0.171869 0.049941 0.001846 0.005727 0.025402 0.000228 0.021409 0.354442
10.48 15.48 18.15 −8.24 0.30 3.13 −1.32 −2.05
0 0 0 0 0.763 0.002 0.186 0.04
1.19 1.95 1.90 1.40 1.10 2.19 2.54 3.70
0.177208*** 0.015478 −0.03336** 0.002776 F(5,2755) = 78.87 Prob > F = 0
0.016411 0.015011 0.016586 0.015582 Adj-R2 = 0.1747 N = 2761
10.8 1.03 −2.01 0.18
0 0.303 0.044 0.859
1.96 1.86 2.06 1.97
***
Statistical significance at the 10% level. Statistical significance at the 5% level. Statistical significance at the 1% level.
7. Empirical results (1) Question One: could environmental management improve corporate value Regression result shows that coefficient of environmental score (ESCORE) is positive, and significant at 5% significance level, which means environmental management can improve corporate value. Investors have realized the importance of environmental management and their investment behaviors are influenced by environmental information. Companies with high environmental management level get recognition from investors and their firm
Regression result of model four* Variable
Coefficient
Std. error
t
P>t
VIF
EPS/P−1 BPS/P−1 PB SIZE BETA ESCORE DUMMYYEAR=2008 DUMMYYEAR=2009
1.637597*** 0.682178*** 0.042805*** −0.07122*** 0.078121 −0.00012 −0.01187 −0.19172***
0.362228 0.090976 0.005422 0.009402 0.047355 0.000254 0.060251 0.056267
4.52 7.5 7.89 −7.57 1.65 −0.48 −0.2 −3.41
0 0 0 0 0.1 0.633 0.844 0.001
1.22 2.14 2.32 1.27 1.13 1.21 8.76 7.83
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Return Model One:
Regression result of model four* Variable
Coefficient
Std. error
t
P>t
VIF
DUMMYPOL=1 DUMMYPOL=2
−0.0018 0.059478** F(5,2755) = 19.53 Prob > F = 0
0.032073 0.030152 Adj-R2 = 0.2473 N = 565
−0.06 1.97
0.955 0.049
2.20 2.27
* ** ***
+ ˇ12 DUMMYPOL + εi,t
Coefficient
Std. err.
t
P>t
VIF
EPS/P−1 BPS/P−1 PB SIZE BETA ESCORE DUMMYYEAR=2008 DUMMYYEAR=2009 DUMMYPOL=1 DUMMYPOL=2
1.814419*** 0.816106*** 0.033311*** −0.03692*** −0.00874 0.000689*** 0.184038*** 0.023162 −0.03645*** −0.00808 F(5,2755) = 46.31 Prob > F = 0
0.193146 0.059276 0.002001 0.006886 0.029337 0.000238 0.017924 0.016384 0.018975 0.017824 Adj-R2 = 0.1711 N = 2196
9.39 13.77 16.65 −5.36 −0.30 2.90 10.27 1.41 −1.92 −0.45
0 0 0 0 0.766 0.004 0 0.158 0.055 0.65
1.15 1.95 1.87 1.25 1.07 1.15 1.68 1.59 1.93 2.02
**
Statistical significance at the 10% level. Statistical significance at the 5% level. Statistical significance at the 1% level.
(3) Influence of different kinds of environmental management measures Regression result shows that in secondary index of environmental information disclosure, coefficient of “production of environment-friendly products” (ESCORE3) is significant at 5% significance level, and coefficients of “management of polluted environment” (ESCORE1), “recycle of environmental harmful materials” (ESCORE2), and “adoption other means to control pollution” (ESCORE4) are positive but do not pass significance test. The result suggests that the market attaches great importance on “production of environment-friendly products”, which exerts outstanding influence on corporate value, but the influence of other indexes is weak. Regression result of model six* Variable
Coefficient
Std. error
T
P>t
VIF
EPS/P−1 BPS/P−1 PB SIZE BETA ESCORE1 ESCORE2 ESCORE3 ESCORE4 DUMMYINDEP DUMMYYEAR=2008 DUMMYYEAR=2009 DUMMYPOL=1 DUMMYPOL=2
1.802203*** 0.775704*** 0.033408*** −0.04711*** 0.007076 0.000368 0.000486 0.000822** 9.93E-05 −0.05251*** 0.171253*** 0.010782 −0.03196** 0.006227 F(5,2755) = 42.37 Prob > F = 0
0.172105 0.049972 0.001847 0.005746 0.02543 0.000388 0.000408 0.000364 0.000366 0.01686 0.016515 0.014982 0.016606 0.015636 Adj-R2 = 0.1734 N = 2761
10.47 15.52 18.09 −8.2 0.28 0.95 1.19 2.25 0.27 −3.11 10.37 0.72 −1.92 0.4
0 0 0 0 0.781 0.343 0.234 0.024 0.786 0.002 0 0.472 0.054 0.69
1.19 1.95 1.95 1.90 1.10 1.08 1.18 1.03 1.37 1.57 1.98 1.85 1.97 2.07
* ** ***
ˇ1 EPSi,t ˇ2 (EPSi,t − EPSi,t−1 ) + + ˇ3 BETAi,t Pi,t−1 Pi,t−1
+ ˇ8 EIi,t + ˇ11 DUMMYYEAR + ˇ11 DUMMYYEAR
Statistical significance at the 10% level. Statistical significance at the 5% level. Statistical significance at the 1% level.
Variable
***
RETi,t = ˇ0 +
+ ˇ4 SIZEi,t + ˇ5 PBi,t + ˇ6 ESCOREi,t + ˇ7 DUMMYINDEP
Regression result of model five*
*
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Statistical significance at the 10% level. Statistical significance at the 5% level. Statistical significance at the 1% level.
(4) Analysis on sensibility We have employed Return Model for robust test. We build a model based on Return Model, to validate the robustness of Ohlson Model’s result.
Robust regression result shows return coefficient of environmental information score, the ESCORE is positive and significant at 5%, which is consistent with result of Ohlson Model above. It suggests that environmental management can improve firm value. Regression coefficient of DUMMYINDEP is negative and significant at 10%, and the coefficient of DUMMYINDEP × ESCORE is significantly negative. It suggests that environment report does not improve firm value. The sensitivity tests are consistent with our main results. Regression result of return model one Variable
Coefficient
Std. error
EPS/P−1 (EPSi,t − EPSi,t−1 )/P−1 PB SIZE BETA ESCORE DUMMYINDEP DUMMYINDEP × ESCORE DUMMYYEAR=2008 DUMMYYEAR=2009 DUMMYPOL=1 DUMMYPOL=2
2.557375*** −0.32559*** 0.017719*** −0.03032*** 0.005929 0.794214*** −0.03763* −0.89832** 0.145186*** 0.084055*** −0.02162 0.027654* F(5,2755) = 28.36 Prob > F = 0
0.212397 12.04 0.098208 −3.32 0.001585 11.18 0.005849 −5.18 0.026468 0.22 0.237368 3.35 0.022269 −1.69 0.368748 −2.44 0.016968 8.56 0.014901 5.64 0.017246 −1.25 0.016124 1.72 Adj-R2 = 0.1063 N = 2761
* ** ***
t
P>t
VIF
0 0.001 0 0 0.823 0.001 0.091 0.015 0 0 0.21 0.086
1.68 1.50 1.30 1.35 1.11 2.19 2.54 3.70 1.94 1.69 1.97 2.04
Statistical significance at the 10% level. Statistical significance at the 5% level. Statistical significance at the 1% level.
Regression result of return model two* Variable EPS/P−1 (EPSi,t − EPSi,t−1 )/P−1 PB SIZE BETA ESCORE1 ESCORE2 ESCORE3 ESCORE4 DUMMYINDEP DUMMYYEAR=2008 DUMMYYEAR=2009 DUMMYPOL=1 DUMMYPOL=2
* ** ***
Coefficient ***
2.562857 −0.32524*** 0.017529*** −0.03031*** 0.005307 0.294156 0.635201 0.821275** 0.085006 −0.06905*** 0.137888*** 0.078567*** −0.01973 0.031731** F(5,2755) = 24.00 Prob > F = 0
Std. error
t
P>t
VIF
0.212721 0.098335 0.001585 0.005872 0.026504 0.403986 0.424694 0.379348 0.381458 0.017514 0.017065 0.014892 0.01727 0.016181 Adj-R2 = 0.1045 N = 2761
12.05 −3.31 11.06 −5.16 0.2 0.73 1.5 2.16 0.22 −3.94 8.08 5.28 −1.14 1.96
0 0.001 0 0 0.841 0.467 0.135 0.03 0.824 0 0 0 0.253 0.05
1.68 1.50 1.29 1.36 1.11 1.08 1.18 1.03 1.37 1.57 1.96 1.68 1.97 2.05
Statistical significance at the 10% level. Statistical significance at the 5% level. Statistical significance at the 1% level.
In secondary index of environmental information disclosure, coefficient of “production of environment-friendly products” (ESCORE3) is significant at 5% level, and coefficients of “management of polluted environment”(ESCORE1), “recycle of environmental harmful materials”(ESCORE2) and “adoption other means to control pollutions”(ESCORE4) are positive but not significant, which is also consistent with main results of our paper.
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8. Conclusion and enlightenment This paper analyzes the impact of enterprises’ environmental management and its disclosure on corporate value. We conclude that environmental management excluding independent environment report can improve corporate value. In specific environmental management measures, producing environmental friendly products can help environmental friendly products gain recognition and improve corporate value significantly. As enterprises are profit-making organizations, requirement for enterprises to give up financial performance and take responsibility of environmental protection is unrealistic. The ideal situation is improving corporate environmental and financial performance simultaneously, which is benefit to both enterprises and communities. Lots of empirical evidences and case studies have proved it. Even in developing countries, for example Chinese companies also give attention to environmental issues and strengthen environmental protection by spontaneous behavior, which can increase the corporate value. To be fair, a centralized list of environmental information on independent environment report has reduced acquisition cost of information users. It makes environmental information not scattering in financial reports any more, which is an improvement of status of environmental information. From these perspectives, independent environment report is more beneficial to delivery of environmental information and elimination of information asymmetry. Therefore, we should encourage the development of independent environment report. The development of environmental information disclosure in China is immature, and lots of questions are left for in-depth researches. Since enterprises’ environmental information disclosure is related to science, chemistry, sociology, economics, ethics, metrology, etc., successful research on this question requires joint efforts from experts in all areas. More importantly, environmental information itself is of existence value exceeding economic meaning, on which the research shall not be limited to economic area. There is great space and meaning for further study on its social, political and other values. Chinese enterprises are increasing emphasis on environmental protection. More and more companies disclose information relating to the environment and improve environmental management. However, there are still a lot of companies have not pay enough attention to environmental management. In the current global trend of increasingly stringent environmental protection, the way that Chinese enterprises how to improve their environmental management is an important factor to determine the Chinese enterprises position in the worldwide competitiveness. If the company can achieve excellent performance or generate a good social image
in protecting environment, it can increase product sales and expand product market share to some extent. Therefore, in the long term, the ability of environmental management in business innovation is likely to be a key for company to win competitive advantage. It will be used with the traditional role of business factors to let enterprises gain a leading edge in the industry competition. The listed company tries to improve environmental management. Although it will occupy some part of normal production and business activities’ funds and resources, it does improve the company’s competitiveness in a greater extent and reduce environmental risks, thereby enhancing the value of the company. Both shareholders and other related stakeholders are benefit. Therefore, in the long term, increasing the intensity of environmental protection and improving environmental management can make efforts to enhance the future value of the company. Therefore, our conclusion has a certain significance for Chinese enterprises in enhancing corporate value and making reasonable effective environmental protection. References Berman, S.L., Wicks, A.C., Kotha, S., Jones, T.M., 1999. Does stakeholders orientation matter? The relationship between stakeholder management models and firm performance. Acad Manage J. 42, 488–506. Brammer, S., Brooks, C., Pavelin, S., 2006. Corporate Social Performance and stock returns: UK evidence from disaggregate measures. Finan. Manag. 35 (3), 97–116. Chen, Y., Ma, L., 2006. Empirical Analysis of listed companies social responsibility accounting information in market reaction. Acc. Res. 11, 76–81. Clarkson, P., Fang, X., Li, Y., Richardson, G., 2010. The Relevance of Environmental Disclosure for Investors and Other Stakeholder Groups: Which Audience Are Firms Speaking To? (March) Working paper. Clarkson, P., Li, Y., Richardson, G., 2004. The market valuation of environmental capital expenditures by pulp and paper companies. The Acc. Rev. (April). Hongtao, S., Yuxiaolu, L., 2010. The Analysis of heavy polluting industries environmental information disclosure situation of listed companies. Securities Market Herald 6. Ingram, R.W., 1978. An investigation of the information content of (certain) Social Responsibility Disclosure. J. Acc. Res. 16 (2), 270–285. Klassen, R.D., McLaughlin, C.P., 1996. The impact of environmental management on firm performance. Manage. Sci. 42 (8), 1199–1214. McGuire, J., Sundgren, A., Schneeweis, T., 1988. Corporate social responsibility and firm financial performance. Acad. Manage. J., 854–872. Ohlson, J., 1995. Earnings, book value, and dividends in security valuation. Contemp. Account. Res., 661–687. Plumlee, M., Brown, D., Marshall, S., 2009. The impact of Voluntary Environmental Disclosure Quality on Firm Value SSRN working paper. Qiulin, Y., Zhengwen, H., Zuan, C., 2002. Imperative to build accounting for social responsibility with Chinese characteristic, a research on carrying out accounting for social responsibility in Chinese enterprises. J. Nanhua Univ. (Soc. Sci. Ed.) 4, 16–24. Waddock, S., Graves, S.B., 1997. The corporate social performance-financial performance link. Strategic Manage. J. 18, 303–319. Yi, Y., Hongtao, S., 2008. The empirical research on the relationship between Corporate Social Responsibility and financial performance. J. Jinan Univ. 6. Yuqing, C., Lili, M., 2005. An empirical analysis on market reaction of Chinese list firms’ social responsibility accounting information. Acc. Res. 11, 76–81.
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Ecological Indicators journal homepage: www.elsevier.com/locate/ecolind
Does environmental management improve enterprise’s value? – An empirical research based on Chinese listed companies Song Hang ∗ , Zhao Chunguang Shanghai National Accounting Institute, China
a r t i c l e
i n f o
Article history: Received 22 March 2014 Received in revised form 6 August 2014 Accepted 14 August 2014 Keywords: Environmental management Corporate value Environmental information disclosed
a b s t r a c t The company’s environmental management behaviors can improve the relationship between the company stakeholders, help companies to sustainably develop. But it is more seen as an obligation and cost of the company’s environmental protection in developing countries. So what kind of impact the environmental protection have on the value of the company? Taking Chinese listing Corporation as a sample. This paper analyzes the impact of enterprises’ environmental management and its disclosure on corporate value. We conclude that environmental management excluding independent environment report can improve corporate value. In specific environmental management measures, producing environmental friendly products can help environmental friendly products gain recognition and improve corporate value significantly. © 2014 Elsevier Ltd. All rights reserved.
1. Introduction With the development of economy and society, environmental issues get more and more attention from all sectors, for example, air quality and environmental pollution incidents exposure straightly in major media. We all recognize that the cost of the environmental pollution exchange for economic development is not sustained. The party’s No. 18 conference declares five civilized development path including building economic civilization and ecological civilization. It is the guidelines for the economic development and environmental protection from the national direction level. As the main micro companies, especially large companies inevitably are concerning about the environment issue. Environmental destruction and energy depletion will affect the company’s sustainable development. Any responsible company cannot ignore environmental issues. But environmental protection has obviously externalities and the companies need additional investment, such as higher costs of clean raw material procurement, investment in environmental protection facilities, etc. At the same time, environment protection brought benefits, but most did not get confirmed in the accounting profit, or just get confirmed in the accounting profit, but not linked with environmental protection investment. Therefore, from the traditional concept, environmental protection is often identified as costs, not clear benefits. If economic benefits
∗ Corresponding author. Tel.: +86 2169768245; fax: +86 2169768048. E-mail address: [email protected] (S. Hang). http://dx.doi.org/10.1016/j.ecolind.2014.08.020 1470-160X/© 2014 Elsevier Ltd. All rights reserved.
of environmental protection to the enterprise are insufficient to cover additional costs, companies have no motivation voluntarily to carry on environmental protection. It will not take the initiative, conscious long-term environmental protection. Only under the situation that enterprises would like invest environmental protection to bring economic benefits, which means that environmental protection and economic interests are the same, enterprise will take the initiative and positive obligation to protect the environment. Various circles of society have recognized the idea that enterprises should be accountable for environmental protection. Enterprises have to obey related laws and regulations to protect environment, meanwhile, they need disclose environmental information, which is essential part of environmental management, corporations’ tool to let the public know their environmental protection obligations and a window for communities’ supervision on enterprises’ environmental behaviors. In China, the concept of establishing harmonious society and sustainable development is dramatically rooted, corporate environmental responsibility has gained increasing attention, and stakeholders’ requirement for disclose of environmental information is getting stronger. Laws and regulations in China are gradually expanding supervision on enterprise environment information disclosure, requirement of supervision is improving and supervision process is becoming more standard. Meantime, environmental information disclosure on corporate annual financial reports in China is in increasingly high level (Hongtao and Yuxiaolu 2010), and some companies start to provide independent environmental,
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sustainable development or social responsibility report to disclose enterprises’ environmental information. The company’s environmental management behavior which affects stock prices can be divided into two parts: environmental management practices and environmental information disclosure. Environmental management practices affect the relationship between the company and stakeholders by improving the environment. Environmental information disclosure improves the environment of information superhighway investor, so as to enhance corporate value. Through these two layers, environmental protection behaviors will exert influence on corporate value and investors’ assessment of the company. This paper is an empirical research on the influence in environmental management of corporate value, which includes three questions below: (1) Does environmental management have impact on corporate value? (2) Does independent information disclosure improve firm value? (3) How will specific environmental management measures (including management of polluted environment, recycle of materials harmful to environment, production of environment-friendly products, and adoption of other means to control pollution) affect corporate value?
2. Literature review Early research focused on the study of the relationship between corporate social responsibility and financial performance, but because of the different research methods, variable selection and environmental indicators, the results are not consistent. Waddock and Graves (1997) using a sample of S & P 500 company to study the relationship between environmental management and corporate financial performance by using KLD Social Responsibility Index which is developed by Kinder, Lydenberg, Domini. They found that there was a significant positive correlation between corporate environmental management and cooperate financial performance (ROA). Klassen and McLaughlin (1996) found that environmental management will improve the corporate financial performance by improving operating income and reducing product costs both sides. There are some possible ways to improve operating income: increase market share, generate economies scale; improve production contribution margin; verify environment products or processes. There are some major ways to reduce production costs: First, a good environmental performance may make the company establish a wide range of industries standards to meet their own situation, which can help themselves to be in a better competitive position in the reduction costs area; Second, good environmental performance may make the company be able to better re-use raw materials and energy, thereby increasing production efficiency; Third, good environmental performance may make companies reduce pollution emissions, thus reducing costs in terms of environmental restoration and pollution remove governmental regulations. There are little direct study between environmental management and corporate value, Clarkson et al. (2010)) Using a sample of firms from the five most polluting industries in the U.S., find that voluntary environmental disclosures are incrementally informative for investors over current toxic emissions data in our firm valuation analyses and investors appear to use toxic emissions data to assess the firm risks and unbooked future environmental liabilities. However, they do not find evidence that voluntary an environmental disclosure affects firm’s cost of equity capital. Focusing on the pulp and paper industry and using the Ohlson (1995) levels valuation model, Clarkson et al. (2004) show that the market positively values environmental capital expenditures for good (but not poor) environment performance firms. Plumlee et al. (2009) investigate the relationship between the quality of
a firm’s voluntary environmental disclosure and firm value (cost of equity capital and expected cash flow). They find that disclosure quality is negatively associated with the cost of capital. The study of Ingram (1978) found that in terms of disclosure environmental information, monetization information portfolio income is higher than non-monetary portfolio information; disclosing non-monetary portfolio information are higher return than nondisclosure portfolio information. Berman et al. (1999) studied the relationship between several aspects covered by social responsibility and corporate value. The empirical results show that only the interests of employees and product quality and safety associated with corporate value, while community interests, environmental protection and other aspects of the company’s value have no direct relationship with corporate value. Brammer et al. (2006) analyzed the correlation between environmental indicators and stock returns. They found that there is a significant negative correlation between them. Domestic research started relatively late, social responsibility related research involves the study of environmental issues. Just few research literature focus on environmental aspects, such as Qiulin et al. (2002), Yuqing and Lili (2005), Chen and Ma (2006), Yi and Hongtao (2008). Most scholars support that there is a positive correlation between fulfillment of social responsibility and corporate value. As seen from the above study, environmental issues have been given enough attention, but there is lack of research which is carried out for developing countries such as China, in particular, the relationship between the environmental behavior and corporate value. This paper aims to accelerate the environmental protection behavior through empirical research.
3. Sample and data The samples include Shanghai and Shenzhen A-shares publically disclosed annual report and environmental report from 2007 to 2009. Environmental information disclosure data is collected manually based on annual report on websites of Shanghai and Shenzhen stock exchanges and corporate websites. Financial data and stock profit data are from CSMAR database. Because of the particularity in financial indicators, sample selection criteria are as follows: excluding finance industry firms ST firms; excluding firms lacked of stock price; excluding financial and environmental information data and outliers. Then we obtain 2761 samples finally. The composition of the sample data is as follows Year
Companies amount
2007 2008 2009
777 855 1129
Percentage 28.14% 30.97% 40.89%
Total
2761
100.00%
Descriptive statistics for each variable as shown in the following table. Variable
Mean
Standard deviation
RET EPS BETA PB SIZE ESCORE ESCORE1 ESCORE2 ESCORE3 ESCORE4
−0.0586 0.259309 1.009154 4.772454 21.75226 0.025389 0.00339 0.004394 0.005381 0.012224
0.313302 0.415167 0.224079 4.051207 1.120766 0.035166 0.014539 0.014404 0.015132 0.017292
Sample amount = 2761
Minimum −0.52338 −1.0476 0.430672 0.835494 19.31522 −0.021 −0.048 0 0 0
Maximum 1.18478 1.8228 1.644433 27.40028 25.01807 0.26 0.096 0.072 0.076 0.054
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4. Hypothesis development
Hypothesis H3. Different environmental management methods have different influence on corporate value.
Hypothesis H1. Environmental management is positively correlated with firm value.
In order to meet requirements of the whole stakeholders, enterprises’ environment report contains various aspects of information. Our environmental information assessment system evaluates enterprise environmental management through four two-level indexes, which are: (1) management of polluted environment, (2) recycle of environmental harmful material, (3) production of environment-friendly products, (4) adoption other means to control pollution. The four indexes reflect from different aspects environmental protection behaviors of enterprises. Therefore Hypothesis H3 is proposed: different environmental management methods have different influence on corporate value.
From the cost perspective, there has been research illustrating that environmental protection behaviors can reduce cost of capital. Firstly, environmental protection actions such as high utilization rate of raw materials, waste recycling and energy conservation, can reduce enterprises’ production cost; secondly, environmental protection actions can decrease cost and expense caused by lawsuit, government punishment, environmental protection organizations’ protests, etc.; thirdly, environmental protection behaviors can create sound working environment for employees, which will improve their working efficiency, reduce unit product cost, reduce expense caused by occupational injuries and lawsuits, especially for those industries with terrible working condition. Besides, Hongtao and Yuxiaolu (2010) believes enterprises’ environmental information disclosure could significantly reduce cost of equity capital. In terms of income, study of McGuire et al. (1988) suggests that environmental protection actions can improve enterprises’ image in customers’ heart. However, Klassen and McLaughlin (1996)’s research shows that consumers prefer those environmental friendly products. Moreover, we can find from environmental reports of some American large enterprises that, when they are doing energy conservation and emission reduction work for themselves, they help other companies save energy and gain profit from it. China has established environmental exchange mechanism, and August 5th, 2008 has witnessed that with the founding of Shanghai Energy Exchange and Beijing Environment Exchange, enterprises can purchase and sell environmental resources with approval in normal production and operation activities, which helps realize direct conversion of environmental protection actions and economic benefit. Based on above theories, we believe that (1) considering ethics and morals, some investors would pay particular attention to enterprise social responsibility, and they shall put not only corporate financial performance, but also enterprise environmental protection actions into consideration when they makes decisions; (2) environmental information disclosed by enterprises can be used as substitution variable of economic information, as the enterprise’s environmental protection behaviors will have positive impact on long-term profit generation; (3) corporate social responsibility information can help investors judge supervision cost which the company face potentially including lawsuit, punishment and government regulation. Disclosure of social responsibility information can help the company ease possible sanctions. In view of Hypothesis H1, we suggest that environmental management is positively correlated with firm value. Hypothesis H2. Compared with non-independent disclosure of environment report, enterprises with independent disclosure of environment report values higher. From the perspective of disclosed content, non-independent report is to list out environment information in financial report or supplement financial report, which makes environmental information disclosure dispersive and affects the wholeness and intuitive. While independent environment report list out the environmental information specially, which includes a larger scale of information, wider angle of exhibition and more comprehensive content explained. In terms of disclosure attitude, voluntary disclosure of environmental information can establish the company healthy corporate image and win trust from the communities. Therefore Hypothesis H2 is proposed: enterprises with independent disclosure of environment report values higher.
5. Research design The author adopts regression model approaches on the relationship between environmental management of listed companies with corporate value, namely return based on Ohlson Model with Fama Three-Factors as control variables and add environmental score (ESCORE) as independent variable. The basic model for H1 is as follows: RETi,t = ˇ0 +
ˇ1 EPSi,t ˇ2 BPSi,t + + ˇ3 BETAi,t + ˇ4 SIZEi,t Pi,t−1 Pi,t−1
+ ˇ5 PBi,t + ˇ6 ESCOREi,t + εi,t On the basis of this basic model, the independence factor of whether company’s environment disclosure report is added to the equation dummy variable, in order to test the influence of independent and non-independent disclosure on firm value. The model for H2 is as follows: RETi,t = ˇ0 +
ˇ1 EPSi,t ˇ2 BPSi,t + + ˇ3 BETAi,t + ˇ4 SIZEi,t Pi,t−1 Pi,t−1
+ ˇ5 PBi,t + ˇ6 ESCOREi,t + ˇ7 DUMMYINDEP + ˇ8 (DUMMYINDEP × ESOREi,t ) + ˇ9 DUMMYYEAR + ˇ10 DUMMYPOL + εi,t Lastly, secondary indexes of environmental score is added to the model as proxy variable, which are “management of polluted environment”(ESCORE1), “recycle of environmental harmful material” (ESCORE2), “production of environment-friendly products” (ECORE3), “adoption other means to control pollution” (ESCORE4). The model for H3 is as follows: RETi,t = ˇ0 +
ˇ1 EPSi,t ˇ2 BPSi,t + + ˇ3 BETAi,t + ˇ4 SIZEi,t Pi,t−1 Pi,t−1
+ ˇ5 PBi,t + ˇ6 ESCOREi,t + ˇ7 ESCORE2i,t + ˇ8 ESCORE3i,t + ˇ9 ESCORE4i,t + ˇ10 INDEPENi,t + ˇ11 DUMMYYEAR + ˇ12 DUMMYPOL + εi,t
6. Description of variables 6.1. Dependent variable RETi,t is the buy and hold return of public company i from April 30th of the t year(2007, 2008, 2009) to April 30th of t + 1 year.
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6.2. Independent variable (1) Pi,t−1 means the adjusted share price at the beginning of the period. (2) EPSi,t is earnings per-share of the public company i when the t = December 31st, 2007 or December 31st, 2008 or December 31st, 2009. (3) BPSi,t means net asset per-share of the public company i when the t = December 31st, 2007 or December 31st, 2008 or December 31st, 2009. (4) ESCOREi,t is environmental score of the public company i when the t = December 31st, 2007 or December 31st, 2008 or December 31st, 2009. (5) ESCORE1 is the secondary index: management of polluted environment. (6) ESCORE2 is the secondary index: recycle of materials harmful to environment. (7) ESCORE3 is the secondary index: production of environmentalfriendly products. (8) ESCORE4 is the secondary index: adoption of other means to control pollution. ESCORE adopt annual reports of listed companies and social responsibility report in order to compile its own data. The data processing use SA8000 standard, GRI3 reporting guidelines and the UN “Global Compact” action standards as the reference. Environmental factors are divided into four indicators. It use expert scoring AHP (AHP) to determine the weight of each index, then get comprehensive ESCORE and four sub-indices. 6.3. Dummy variable (1) DUMMYINDEP shows whether disclosure of environmental information is independent of financial report. If environmental information disclosure of the company is independent from financial report, then DummyINDEP = 1, else DummyINDEP = 0. (2) DUMMYYEAR represents the dummy of the sample company. (3) DUMMYPOL stands for dummy variable of pollution degree of the industry. 6.4. Control variable (1) SIZEi,t is the corporate scale of the public company i when the t = December 31st, 2008 or December 31st, 2009, which is the natural logarithm of total assets. (2) BETAi,t means monthly Beta of sub-market of the listed company i when the t = December 31st, 2007 or December 31st, 2009 or December 31st, 2009. When calculating beta for Shanghai stocks, market return of Shanghai shall be employed. It is the same for Shenzhen stocks. (3) PBi,t stands for PB Ratio of the public company i when the t = December 31st, 2007 or December 31st, 2009 or December 31st, 2009.
value is higher, and vice verse. Hypothesis H1 that environmental management can improve corporate value is supported. Main regression result* Variable
Coefficients
Std. err.
T
P>t
VIF
EPS/P−1 BPS/P−1 PB SIZE BETA ESCORE
1.444473*** 0.591246*** 0.022633*** −0.05385*** 0.012867 0.000357** F(5,2755) = 78.87 Adj-R2 = 0.1286
0.173681 0.045266 0.00161 0.005755 0.025934 0.000168 Prob > F = 0 N = 2761
8.32 13.06 14.06 −9.36 0.5 2.13
0 0 0 0 0.62 0.034
1.15 1.52 1.37 1.34 1.09 1.12
* ** ***
Statistical significance at the 10% level. Statistical significance at the 5% level. Statistical significance at the 1% level.
(2) Hypothesis H2: independent disclosure has influence on corporate value Regression result above has suggested that the coefficient of environmental information score (ESCORE) is positive, significant at 5% level, it means environmental management can improve corporate value. Coefficient of DUMMYINDEP × ESCOREi,t is significantly negative. It illustrates that with the same environmental score, nonindependent environment has greater influence on firm value than independent information. Namely independent disclosure of environmental report does not improve firm value, just the verse, which does not support Hypothesis H2. Then we investigate sub-samples of independent and nonindependent disclosure separately. The result shows coefficient of environment score (ESCORE) is not significant in the independent disclosure sub-sample. However, in the group of non-independent disclosure, coefficient of environment score (ESCORE) is significantly positive. It illustrates that independent report of enterprises’ environmental management does not improve corporate value, while non-independent report of corporate environmental information improves firm value. Regression result of model three* Variable EPS/P−1 BPS/P−1 PB SIZE BETA ESCORE DUMMYINDEP DUMMYINDEP × ESCORE DUMMYYEAR=2008 DUMMYYEAR=2009 DUMMYPOL=1 DUMMYPOL=2
* ** **
Coefficients
Std. error
t
P>t
VIF
1.801108 0.772859*** 0.033507*** −0.0472*** 0.007666 0.000715*** −0.0283 −0.72721**
0.171869 0.049941 0.001846 0.005727 0.025402 0.000228 0.021409 0.354442
10.48 15.48 18.15 −8.24 0.30 3.13 −1.32 −2.05
0 0 0 0 0.763 0.002 0.186 0.04
1.19 1.95 1.90 1.40 1.10 2.19 2.54 3.70
0.177208*** 0.015478 −0.03336** 0.002776 F(5,2755) = 78.87 Prob > F = 0
0.016411 0.015011 0.016586 0.015582 Adj-R2 = 0.1747 N = 2761
10.8 1.03 −2.01 0.18
0 0.303 0.044 0.859
1.96 1.86 2.06 1.97
***
Statistical significance at the 10% level. Statistical significance at the 5% level. Statistical significance at the 1% level.
7. Empirical results (1) Question One: could environmental management improve corporate value Regression result shows that coefficient of environmental score (ESCORE) is positive, and significant at 5% significance level, which means environmental management can improve corporate value. Investors have realized the importance of environmental management and their investment behaviors are influenced by environmental information. Companies with high environmental management level get recognition from investors and their firm
Regression result of model four* Variable
Coefficient
Std. error
t
P>t
VIF
EPS/P−1 BPS/P−1 PB SIZE BETA ESCORE DUMMYYEAR=2008 DUMMYYEAR=2009
1.637597*** 0.682178*** 0.042805*** −0.07122*** 0.078121 −0.00012 −0.01187 −0.19172***
0.362228 0.090976 0.005422 0.009402 0.047355 0.000254 0.060251 0.056267
4.52 7.5 7.89 −7.57 1.65 −0.48 −0.2 −3.41
0 0 0 0 0.1 0.633 0.844 0.001
1.22 2.14 2.32 1.27 1.13 1.21 8.76 7.83
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Return Model One:
Regression result of model four* Variable
Coefficient
Std. error
t
P>t
VIF
DUMMYPOL=1 DUMMYPOL=2
−0.0018 0.059478** F(5,2755) = 19.53 Prob > F = 0
0.032073 0.030152 Adj-R2 = 0.2473 N = 565
−0.06 1.97
0.955 0.049
2.20 2.27
* ** ***
+ ˇ12 DUMMYPOL + εi,t
Coefficient
Std. err.
t
P>t
VIF
EPS/P−1 BPS/P−1 PB SIZE BETA ESCORE DUMMYYEAR=2008 DUMMYYEAR=2009 DUMMYPOL=1 DUMMYPOL=2
1.814419*** 0.816106*** 0.033311*** −0.03692*** −0.00874 0.000689*** 0.184038*** 0.023162 −0.03645*** −0.00808 F(5,2755) = 46.31 Prob > F = 0
0.193146 0.059276 0.002001 0.006886 0.029337 0.000238 0.017924 0.016384 0.018975 0.017824 Adj-R2 = 0.1711 N = 2196
9.39 13.77 16.65 −5.36 −0.30 2.90 10.27 1.41 −1.92 −0.45
0 0 0 0 0.766 0.004 0 0.158 0.055 0.65
1.15 1.95 1.87 1.25 1.07 1.15 1.68 1.59 1.93 2.02
**
Statistical significance at the 10% level. Statistical significance at the 5% level. Statistical significance at the 1% level.
(3) Influence of different kinds of environmental management measures Regression result shows that in secondary index of environmental information disclosure, coefficient of “production of environment-friendly products” (ESCORE3) is significant at 5% significance level, and coefficients of “management of polluted environment” (ESCORE1), “recycle of environmental harmful materials” (ESCORE2), and “adoption other means to control pollution” (ESCORE4) are positive but do not pass significance test. The result suggests that the market attaches great importance on “production of environment-friendly products”, which exerts outstanding influence on corporate value, but the influence of other indexes is weak. Regression result of model six* Variable
Coefficient
Std. error
T
P>t
VIF
EPS/P−1 BPS/P−1 PB SIZE BETA ESCORE1 ESCORE2 ESCORE3 ESCORE4 DUMMYINDEP DUMMYYEAR=2008 DUMMYYEAR=2009 DUMMYPOL=1 DUMMYPOL=2
1.802203*** 0.775704*** 0.033408*** −0.04711*** 0.007076 0.000368 0.000486 0.000822** 9.93E-05 −0.05251*** 0.171253*** 0.010782 −0.03196** 0.006227 F(5,2755) = 42.37 Prob > F = 0
0.172105 0.049972 0.001847 0.005746 0.02543 0.000388 0.000408 0.000364 0.000366 0.01686 0.016515 0.014982 0.016606 0.015636 Adj-R2 = 0.1734 N = 2761
10.47 15.52 18.09 −8.2 0.28 0.95 1.19 2.25 0.27 −3.11 10.37 0.72 −1.92 0.4
0 0 0 0 0.781 0.343 0.234 0.024 0.786 0.002 0 0.472 0.054 0.69
1.19 1.95 1.95 1.90 1.10 1.08 1.18 1.03 1.37 1.57 1.98 1.85 1.97 2.07
* ** ***
ˇ1 EPSi,t ˇ2 (EPSi,t − EPSi,t−1 ) + + ˇ3 BETAi,t Pi,t−1 Pi,t−1
+ ˇ8 EIi,t + ˇ11 DUMMYYEAR + ˇ11 DUMMYYEAR
Statistical significance at the 10% level. Statistical significance at the 5% level. Statistical significance at the 1% level.
Variable
***
RETi,t = ˇ0 +
+ ˇ4 SIZEi,t + ˇ5 PBi,t + ˇ6 ESCOREi,t + ˇ7 DUMMYINDEP
Regression result of model five*
*
195
Statistical significance at the 10% level. Statistical significance at the 5% level. Statistical significance at the 1% level.
(4) Analysis on sensibility We have employed Return Model for robust test. We build a model based on Return Model, to validate the robustness of Ohlson Model’s result.
Robust regression result shows return coefficient of environmental information score, the ESCORE is positive and significant at 5%, which is consistent with result of Ohlson Model above. It suggests that environmental management can improve firm value. Regression coefficient of DUMMYINDEP is negative and significant at 10%, and the coefficient of DUMMYINDEP × ESCORE is significantly negative. It suggests that environment report does not improve firm value. The sensitivity tests are consistent with our main results. Regression result of return model one Variable
Coefficient
Std. error
EPS/P−1 (EPSi,t − EPSi,t−1 )/P−1 PB SIZE BETA ESCORE DUMMYINDEP DUMMYINDEP × ESCORE DUMMYYEAR=2008 DUMMYYEAR=2009 DUMMYPOL=1 DUMMYPOL=2
2.557375*** −0.32559*** 0.017719*** −0.03032*** 0.005929 0.794214*** −0.03763* −0.89832** 0.145186*** 0.084055*** −0.02162 0.027654* F(5,2755) = 28.36 Prob > F = 0
0.212397 12.04 0.098208 −3.32 0.001585 11.18 0.005849 −5.18 0.026468 0.22 0.237368 3.35 0.022269 −1.69 0.368748 −2.44 0.016968 8.56 0.014901 5.64 0.017246 −1.25 0.016124 1.72 Adj-R2 = 0.1063 N = 2761
* ** ***
t
P>t
VIF
0 0.001 0 0 0.823 0.001 0.091 0.015 0 0 0.21 0.086
1.68 1.50 1.30 1.35 1.11 2.19 2.54 3.70 1.94 1.69 1.97 2.04
Statistical significance at the 10% level. Statistical significance at the 5% level. Statistical significance at the 1% level.
Regression result of return model two* Variable EPS/P−1 (EPSi,t − EPSi,t−1 )/P−1 PB SIZE BETA ESCORE1 ESCORE2 ESCORE3 ESCORE4 DUMMYINDEP DUMMYYEAR=2008 DUMMYYEAR=2009 DUMMYPOL=1 DUMMYPOL=2
* ** ***
Coefficient ***
2.562857 −0.32524*** 0.017529*** −0.03031*** 0.005307 0.294156 0.635201 0.821275** 0.085006 −0.06905*** 0.137888*** 0.078567*** −0.01973 0.031731** F(5,2755) = 24.00 Prob > F = 0
Std. error
t
P>t
VIF
0.212721 0.098335 0.001585 0.005872 0.026504 0.403986 0.424694 0.379348 0.381458 0.017514 0.017065 0.014892 0.01727 0.016181 Adj-R2 = 0.1045 N = 2761
12.05 −3.31 11.06 −5.16 0.2 0.73 1.5 2.16 0.22 −3.94 8.08 5.28 −1.14 1.96
0 0.001 0 0 0.841 0.467 0.135 0.03 0.824 0 0 0 0.253 0.05
1.68 1.50 1.29 1.36 1.11 1.08 1.18 1.03 1.37 1.57 1.96 1.68 1.97 2.05
Statistical significance at the 10% level. Statistical significance at the 5% level. Statistical significance at the 1% level.
In secondary index of environmental information disclosure, coefficient of “production of environment-friendly products” (ESCORE3) is significant at 5% level, and coefficients of “management of polluted environment”(ESCORE1), “recycle of environmental harmful materials”(ESCORE2) and “adoption other means to control pollutions”(ESCORE4) are positive but not significant, which is also consistent with main results of our paper.
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8. Conclusion and enlightenment This paper analyzes the impact of enterprises’ environmental management and its disclosure on corporate value. We conclude that environmental management excluding independent environment report can improve corporate value. In specific environmental management measures, producing environmental friendly products can help environmental friendly products gain recognition and improve corporate value significantly. As enterprises are profit-making organizations, requirement for enterprises to give up financial performance and take responsibility of environmental protection is unrealistic. The ideal situation is improving corporate environmental and financial performance simultaneously, which is benefit to both enterprises and communities. Lots of empirical evidences and case studies have proved it. Even in developing countries, for example Chinese companies also give attention to environmental issues and strengthen environmental protection by spontaneous behavior, which can increase the corporate value. To be fair, a centralized list of environmental information on independent environment report has reduced acquisition cost of information users. It makes environmental information not scattering in financial reports any more, which is an improvement of status of environmental information. From these perspectives, independent environment report is more beneficial to delivery of environmental information and elimination of information asymmetry. Therefore, we should encourage the development of independent environment report. The development of environmental information disclosure in China is immature, and lots of questions are left for in-depth researches. Since enterprises’ environmental information disclosure is related to science, chemistry, sociology, economics, ethics, metrology, etc., successful research on this question requires joint efforts from experts in all areas. More importantly, environmental information itself is of existence value exceeding economic meaning, on which the research shall not be limited to economic area. There is great space and meaning for further study on its social, political and other values. Chinese enterprises are increasing emphasis on environmental protection. More and more companies disclose information relating to the environment and improve environmental management. However, there are still a lot of companies have not pay enough attention to environmental management. In the current global trend of increasingly stringent environmental protection, the way that Chinese enterprises how to improve their environmental management is an important factor to determine the Chinese enterprises position in the worldwide competitiveness. If the company can achieve excellent performance or generate a good social image
in protecting environment, it can increase product sales and expand product market share to some extent. Therefore, in the long term, the ability of environmental management in business innovation is likely to be a key for company to win competitive advantage. It will be used with the traditional role of business factors to let enterprises gain a leading edge in the industry competition. The listed company tries to improve environmental management. Although it will occupy some part of normal production and business activities’ funds and resources, it does improve the company’s competitiveness in a greater extent and reduce environmental risks, thereby enhancing the value of the company. Both shareholders and other related stakeholders are benefit. Therefore, in the long term, increasing the intensity of environmental protection and improving environmental management can make efforts to enhance the future value of the company. Therefore, our conclusion has a certain significance for Chinese enterprises in enhancing corporate value and making reasonable effective environmental protection. References Berman, S.L., Wicks, A.C., Kotha, S., Jones, T.M., 1999. Does stakeholders orientation matter? The relationship between stakeholder management models and firm performance. Acad Manage J. 42, 488–506. Brammer, S., Brooks, C., Pavelin, S., 2006. Corporate Social Performance and stock returns: UK evidence from disaggregate measures. Finan. Manag. 35 (3), 97–116. Chen, Y., Ma, L., 2006. Empirical Analysis of listed companies social responsibility accounting information in market reaction. Acc. Res. 11, 76–81. Clarkson, P., Fang, X., Li, Y., Richardson, G., 2010. The Relevance of Environmental Disclosure for Investors and Other Stakeholder Groups: Which Audience Are Firms Speaking To? (March) Working paper. Clarkson, P., Li, Y., Richardson, G., 2004. The market valuation of environmental capital expenditures by pulp and paper companies. The Acc. Rev. (April). Hongtao, S., Yuxiaolu, L., 2010. The Analysis of heavy polluting industries environmental information disclosure situation of listed companies. Securities Market Herald 6. Ingram, R.W., 1978. An investigation of the information content of (certain) Social Responsibility Disclosure. J. Acc. Res. 16 (2), 270–285. Klassen, R.D., McLaughlin, C.P., 1996. The impact of environmental management on firm performance. Manage. Sci. 42 (8), 1199–1214. McGuire, J., Sundgren, A., Schneeweis, T., 1988. Corporate social responsibility and firm financial performance. Acad. Manage. J., 854–872. Ohlson, J., 1995. Earnings, book value, and dividends in security valuation. Contemp. Account. Res., 661–687. Plumlee, M., Brown, D., Marshall, S., 2009. The impact of Voluntary Environmental Disclosure Quality on Firm Value SSRN working paper. Qiulin, Y., Zhengwen, H., Zuan, C., 2002. Imperative to build accounting for social responsibility with Chinese characteristic, a research on carrying out accounting for social responsibility in Chinese enterprises. J. Nanhua Univ. (Soc. Sci. Ed.) 4, 16–24. Waddock, S., Graves, S.B., 1997. The corporate social performance-financial performance link. Strategic Manage. J. 18, 303–319. Yi, Y., Hongtao, S., 2008. The empirical research on the relationship between Corporate Social Responsibility and financial performance. J. Jinan Univ. 6. Yuqing, C., Lili, M., 2005. An empirical analysis on market reaction of Chinese list firms’ social responsibility accounting information. Acc. Res. 11, 76–81.