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The effect of environmental information on investment allocation decisions – an experimental study

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  • Pall Rikhardsson
  • Claus Holm

Abstract

This paper focuses on the use of environmental information in investment decision making. The research approach employed is based on an experiment where three groups of final year finance students were asked to allocate investment funds between two companies based on financial accounts and information material from these companies in which environmental information was included in varying degrees. The overall conclusion is that the qualitative environmental information affects short term allocation decisions, hence indicating a risk reduction potential of environmental information comparable to the classic interpretation of financial information. The quantitative environmental information included in the experiment seems to mitigate rather than extend the directional effect of more environmental information. The evidence also seems to indicate that decision makers are not always aware which information categories affect their decision making. Hence, this has implications for how the potential value of environmental information is to be assessed. Finally, experimental studies as a methodology seem to be better suited to indicate actual effects of different types of information on decision making than attitude surveys. Copyright © 2006 John Wiley & Sons, Ltd and ERP Environment.

Suggested Citation

  • 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.
    • Handle: RePEc:bla:bstrat:v:17:y:2008:i:6:p:382-397
    DOI: 10.1002/bse.536
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    2. José M. de la Torre‐Ruiz & J. Alberto Aragón‐Correa & Inmaculada Martín‐Tapia, 2015. "Do Individual Preferences Affect the Environmental Decision‐Making Process in Teams? The Role of Participation," Business Strategy and the Environment, Wiley Blackwell, vol. 24(6), pages 451-465, September.
    3. de Villiers, Charl & van Staden, Chris J., 2010. "Shareholders’ requirements for corporate environmental disclosures: A cross country comparison," The British Accounting Review, Elsevier, vol. 42(4), pages 227-240.
    4. Souhir Khemir, 2011. "Identification des attentes et des besoins des professionnels financiers tunisiens en matière de critères ESG," Post-Print hal-00650534, HAL.
    5. Vera Ferrón‐Vílchez & Jesus Valero‐Gil & Inés Suárez‐Perales, 2021. "How does greenwashing influence managers' decision‐making? An experimental approach under stakeholder view," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 28(2), pages 860-880, March.
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    7. Sandra Chrzan & Christiane Pott, 2024. "Limiting environmental reporting flexibility: investor judgment based on the EU taxonomy," Review of Quantitative Finance and Accounting, Springer, vol. 63(4), pages 1511-1548, November.
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    10. Marius Banke & Stephanie Lenger & Christiane Pott, 2022. "ESG Ratings in the Corporate Reporting of DAX40 Companies in Germany: Effects on Market Participants," Sustainability, MDPI, vol. 14(15), pages 1-21, August.
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