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Does corporate environmental protection increase or decrease shareholder value? The case of environmental investments

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  • Minna Halme
  • Jyrki Niskanen

Abstract

This study examines share price effects of environmental investments using data from the Finnish forest industry from 1970 to 1996. The results indicate that the instantaneous market reaction is negative, and that the larger the investment, the larger the fall in prices. However, contrary to the view that corporate actions have a permanent effect on firm value, we observe rapid price recovery after the instantaneous negative reaction. This may support a hypothesis that environmental investments create goodwill for the investing firms and are thus not negative net present value investments. Unexpectedly, we find that the instantaneous negative market reaction was stronger in the most recent sample years. Explanations for this finding relate to the slowness of institutional change within the financial community as well as to the growing share of international investors seeking short‐term holding gains. In conclusion, it appears that not only finance theory but also notions from institutional theory and corporate environmental management literature are needed to explain stock price behaviour in conjunction with environmental investments. Copyright © 2001 John Wiley & Sons, Ltd and ERP Environment

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  • Minna Halme & Jyrki Niskanen, 2001. "Does corporate environmental protection increase or decrease shareholder value? The case of environmental investments," Business Strategy and the Environment, Wiley Blackwell, vol. 10(4), pages 200-214, July.
    • Handle: RePEc:bla:bstrat:v:10:y:2001:i:4:p:200-214
    DOI: 10.1002/bse.290
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    7. Margaux Escoffier, 2020. "How financial markets react to Total’s strategy of becoming a responsible energy major?," EconomiX Working Papers 2020-30, University of Paris Nanterre, EconomiX.
    8. Wolfgang Schultze & Ramona Trommer, 2012. "The concept of environmental performance and its measurement in empirical studies," Metrika: International Journal for Theoretical and Applied Statistics, Springer, vol. 22(4), pages 375-412, January.
    9. Ying Sun & Kexin Zhang & Xuyang Li, 2024. "The Impact of Environmental Protection Investment and Equity Balance Degree on Economic Performance and Eco-Autonomy: An Empirical Study of China’s A-Share Listed Companies," Sustainability, MDPI, vol. 16(17), pages 1-19, September.
    10. Peter Dobers & Lars Strannegård, 2005. "Design, lifestyles and sustainability. Aesthetic consumption in a world of abundance," Business Strategy and the Environment, Wiley Blackwell, vol. 14(5), pages 324-336, September.
    11. Peter Dobers, 2009. "Corporate social responsibility: management and methods," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 16(4), pages 185-191, July.
    12. Ioannis E. Nikolaou & George Kourouklaris & Thomas A. Tsalis, 2014. "A framework to assist the financial community in incorporating water risks into their investment decisions," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 4(2), pages 93-109, April.
    13. Kim, Sooin & Yoo, Jungmin, 2022. "Corporate Opacity, Corporate Social Responsibility, and Financial Performance," Finance Research Letters, Elsevier, vol. 49(C).
    14. Li, N. & Toppinen, A., 2011. "Corporate responsibility and sustainable competitive advantage in forest-based industry: Complementary or conflicting goals?," Forest Policy and Economics, Elsevier, vol. 13(2), pages 113-123.
    15. Pall Rikhardsson & Claus Holm, 2008. "The effect of environmental information on investment allocation decisions – an experimental study," Business Strategy and the Environment, Wiley Blackwell, vol. 17(6), pages 382-397, September.
    16. Jan Endrikat, 2016. "Market Reactions to Corporate Environmental Performance Related Events: A Meta-analytic Consolidation of the Empirical Evidence," Journal of Business Ethics, Springer, vol. 138(3), pages 535-548, October.
    17. Dongmin Kong & Shasha Liu & Yunhao Dai, 2014. "Environmental Policy, Company Environment Protection, and Stock Market Performance: Evidence from China," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 21(2), pages 100-112, March.
    18. Gonzalo Maldonado-Guzman & Sandra Yesenia Pinzon-Castro & Gabriela Citlalli Lopez-Torres, 2016. "Corporate Social Responsibility and Business Performance: The Role of Mexican SMEs," International Journal of Asian Social Science, Asian Economic and Social Society, vol. 6(10), pages 568-579, October.
    19. Eva Regnier & Craig Tovey, 2007. "Time horizons of environmental versus non‐environmental costs: evidence from US tort lawsuits," Business Strategy and the Environment, Wiley Blackwell, vol. 16(4), pages 249-265, May.
    20. Matthew M Haigh & Matthew A Shapiro, 2013. "Do Environmental Policy Instruments Influence Fiduciaries' Decisions?," Environment and Planning A, , vol. 45(4), pages 853-871, April.
    21. Giuliana Birindelli & Helen Chiappini, 2021. "Climate change policies: Good news or bad news for firms in the European Union?," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 28(2), pages 831-848, March.
    22. Ni, Xiaoran & Song, Wei & Yao, Jiaquan, 2020. "Stakeholder orientation and corporate payout policy: Insights from state legal shocks," Journal of Banking & Finance, Elsevier, vol. 121(C).

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