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The Value Relevance of Environmental Audits: Evidence from Japan

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  • Ki‐Hoon Lee
  • Bum‐Jin Park
  • Hakjoon Song
  • Keun‐Hyo Yook

Abstract

Environmental audits are implemented internally in order to monitor compliance with environmental laws, regulations and related accounting rules, and to develop recommendations for ways in which to improve environmental accounting processes and performance. In addition, external third‐party assurance on environmental information is used to verify whether firms’ disclosures on environmental information are in compliance with environmental accounting rules and regulations. We examine whether firms’ environmental audits positively affect their market values and whether third‐party assurance strengthens positive effects, using value relevance theory as a theoretical foundation. Our main tests are based on 266 Japanese manufacturing firms’ published environmental reports for the period 2010–2013. We find that the average market value of firms that implement environmental audits is 9 percent greater than those that do not. Further, we find that environmental audits positively affect firm value, largely through interaction with third‐party assurance. Copyright © 2016 John Wiley & Sons, Ltd and ERP Environment

Suggested Citation

  • Ki‐Hoon Lee & Bum‐Jin Park & Hakjoon Song & Keun‐Hyo Yook, 2017. "The Value Relevance of Environmental Audits: Evidence from Japan," Business Strategy and the Environment, Wiley Blackwell, vol. 26(5), pages 609-625, July.
    • Handle: RePEc:bla:bstrat:v:26:y:2017:i:5:p:609-625
    DOI: 10.1002/bse.1940
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    3. Shoaib Aslam & Mohamed H. Elmagrhi & Ramiz Ur Rehman & Collins G. Ntim, 2021. "Environmental management practices and financial performance using data envelopment analysis in Japan: The mediating role of environmental performance," Business Strategy and the Environment, Wiley Blackwell, vol. 30(4), pages 1655-1673, May.
    4. Iman Harymawan & Mohammad Nasih & Atila Salsabilla & Fajar Kristanto Gautama Putra, 2020. "External assurance on sustainability report disclosure and firm value: evidence from Indonesia and Malaysia," Entrepreneurship and Sustainability Issues, VsI Entrepreneurship and Sustainability Center, vol. 7(3), pages 1500-1512, March.

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