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The value relevance of reported carbon emissions

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  • Camélia Radu

    (Université du Québec à Montréal)

  • Samaneh Maram

    (Université du Québec à Montréal)

Abstract

In 2004, Canada’s Greenhouse Gas (GHG) Reporting Program made carbon emissions disclosure mandatory for Canadian facilities emitting 100 kilotonnes or more. Three industrial sectors are responsible for most of Canada’s GHG emissions: oil and gas, transportation and electricity. This study sheds light on the role of industrial sector polluting levels and the influence of firms’ environment or sustainable development committee on the market valuation of their reported carbon emissions. We used a modified version of Ohlson’s model to examine the value relevance of carbon emissions disclosure for the program’s entire reporting period, running from 2004 to 2017, the last available year. Our results show a negative association between GHG emissions and firm value. Investors use the total level of GHG emissions to assess future environmental liabilities, and industrial sector polluting level moderates the negative association between these emissions and firm value. For every additional tonne of GHG emissions, low-polluting firms saw their market value drop by $548 and high-GHG emitting firms by $35. Our results provide evidence of a more prominent negative relationship between GHG emissions and firm value for firms operating in low-GHG emitting industrial sectors, indicating higher penalties from stock market participants for these firms. Our findings suggest that stock market participants draw on distinct institutional logics: the dominant economic logic, favoured by investors interested in high-GHG emitting firms, versus an alternative social and environmental logic, used by those interested in low-GHG emitting firms. Moreover, companies with an environment or sustainable development committee have, on average, higher levels of GHG emissions than companies with no similar committee. The market value of companies with such committee decreases by $518 for every additional tonne of GHG emissions. Companies with no such committee record no effect of GHG emissions on their market values.

Suggested Citation

  • Camélia Radu & Samaneh Maram, 2021. "The value relevance of reported carbon emissions," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 25(2), pages 347-377, June.
    • Handle: RePEc:kap:jmgtgv:v:25:y:2021:i:2:d:10.1007_s10997-020-09547-5
    DOI: 10.1007/s10997-020-09547-5
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