The relevance of environmental disclosures: Are such disclosures incrementally informative? ☆

doi:10.1016/J.JACCPUBPOL.2013.06.008

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The relevance of environmental disclosures: Are such disclosures incrementally informative? ☆

Journal Article•DOI•

The relevance of environmental disclosures: Are such disclosures incrementally informative? ☆

Peter Clarkson¹, Peter Clarkson², Xiaohua Fang³, Yue Li⁴, Gordon D. Richardson⁴ - Show less +1 more•Institutions (4)

Simon Fraser University¹, University of Queensland², J. Mack Robinson College of Business³, University of Toronto⁴

01 Sep 2013-Journal of Accounting and Public Policy (Elsevier)-Vol. 32, Iss: 5, pp 410-431

TL;DR: In this article, the authors investigated the relationship between voluntary environmental disclosure and the stock price of a firm and found that a proactive environmental strategy and the signaling of such a strategy to investors can enhance a firm's stock price, a finding which will assist CSR practitioners in convincing top management that proactive environmental strategies combined with transparent voluntary environmental disclosures are worthwhile.

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About: This article is published in Journal of Accounting and Public Policy.The article was published on 2013-09-01. It has received 444 citations till now. The article focuses on the topics: Enterprise value.

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Journal Article•DOI•

Voluntary environmental disclosure quality and firm value: Further evidence

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Marlene Plumlee¹, Darrell Brown², Rachel M. Hayes¹, Scott Marshall²•Institutions (2)

University of Utah¹, Portland State University²

01 Jul 2015-Journal of Accounting and Public Policy

TL;DR: In this paper, the authors examined the relationship between the quality of a firm's voluntary environmental disclosure and its expected future cash flows and the cost of equity, and found that the type and nature of the environmental disclosure is informative in establishing the predicted relations.

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619 citations

Cites background or methods from "The relevance of environmental disc..."

...…with CSR performance superior to that of their industry peers enjoy a reduction in the COEC upon the initiation of standalone CSR reports, while Clarkson et al. (2013) fail to document a significant relation between VEDQ and COEC but find that firms with higher VEDQ report higher future return…...
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...We also include the PEG method COEC in order to provide a comparison to concurrent studies that employ this measure (e.g. Clarkson et al., 2013)....
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...We use two implied COEC proxies that rely on stock price and expectations of future cash flows, consistent with a broad stream of research that examines disclosure related issues using implied COEC (e.g. Clarkson et al., 2013; Dhaliwal et al., 2011)....
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...We consider this in our analysis by parsing the data from our disclosure index (which is similar to the Clarkson et al., 2013 index) in the following manner....
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...First, consistent with Clarkson et al. (2013), we classify the items in the voluntary environmental disclosure index into those that are related to hard/objective and soft/subjective disclosures.2 We also consider the ‘‘nature’’ (positive, negative, or neutral3) of the items in the environmental…...
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Journal Article•DOI•

ESG performance and firm value: The moderating role of disclosure

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Ali M Fatemi¹, Martin Glaum², Stefanie Kaiser²•Institutions (2)

DePaul University¹, WHU - Otto Beisheim School of Management²

09 Mar 2017-Global Finance Journal

TL;DR: This paper investigated the effect of environmental, social, and governance (ESG) activities and their disclosure on firm value, and found that ESG strengths increase firm value and weaknesses decrease it, while disclosure plays a crucial moderating role by mitigating the negative effect of weaknesses and attenuating the positive effect of strengths.

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426 citations

Journal Article•DOI•

Are CSR Disclosures Value Relevant? Cross-Country Evidence

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Steven F. Cahan¹, Charl de Villiers², Debra C. Jeter³, Vic Naiker⁴, Chris J. van Staden² - Show less +1 more•Institutions (4)

University of Auckland¹, Auckland University of Technology², Vanderbilt University³, Monash University⁴

02 Jul 2016-European Accounting Review

TL;DR: In this paper, the authors examined how the strength of nation-level institutions affects the extent of CSR disclosures and examined the valuation implications of the CSR disclosure and how the relation between CSR and firm value varies across countries.

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Abstract: Using proprietary data that rate corporate social responsibility (CSR) disclosures of firms in 21 countries, this study examines how the strength of nation-level institutions affects the extent of CSR disclosures. We then examine the valuation implications of CSR disclosures and consider how the relation between CSR disclosures and firm value varies across countries. In contrast to prior studies, we separate CSR disclosures into an expected and unexpected portion where the unexpected portion is a proxy for the incremental information contained in CSR disclosures. We observe a positive relation between unexpected CSR disclosure and firm value measured by Tobin's Q. We also find that, while countries with strong nation-level institutions promote more CSR disclosures, the valuation of a unit increase in unexpected CSR disclosures is higher when nation-level institutions are weak.

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282 citations

Cites background from "The relevance of environmental disc..."

...More recently, De Villiers and Van Staden (2011) find that economic performance (measured using ROA) is negatively related to environmental disclosures in the annual report, while Clarkson et al. (2013) find that voluntary environmental disclosures in the five most polluting US industries are incrementally informative relative to toxic emissions data and that investors seem to use emissions data to assess firms’ risks. Similarly, in another study examining US firms, Plumlee et al. (2015) present evidence consistent with an association between voluntary environmental disclosure quality and a firm’s cost of equity capital and expected future cash flows. Dhaliwal et al. (2011) attempt to look beyond the environmental aspect by focusing on standalone CSR reports. They examine whether firms that voluntarily initiate such a report benefit from a decline in their cost of capital. They find that firms with a high cost of capital tend to initiate a stand-alone CSR report and that, subsequently, they experience a reduction in the cost of equity capital under certain conditions. Dhaliwal et al. (2011) use a binary indicator to capture the presence or non-presence of a stand-alone report. In contrast, we use a continuous measure related to the content of all CSR disclosures. Simnett, Vanstraelen, and Chua (2009) examine the characteristics of firms that issue sustainability reports and voluntarily have them assured. They use an international sample drawn from 31 countries. Simnett et al. (2009) find that firms that have a greater need to enhance the credibility of their reports seek assurance....
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...More recently, De Villiers and Van Staden (2011) find that economic performance (measured using ROA) is negatively related to environmental disclosures in the annual report, while Clarkson et al. (2013) find that voluntary environmental disclosures in the five most polluting US industries are incrementally informative relative to toxic emissions data and that investors seem to use emissions data to assess firms’ risks. Similarly, in another study examining US firms, Plumlee et al. (2015) present evidence consistent with an association between voluntary environmental disclosure quality and a firm’s cost of equity capital and expected future cash flows. Dhaliwal et al. (2011) attempt to look beyond the environmental aspect by focusing on standalone CSR reports. They examine whether firms that voluntarily initiate such a report benefit from a decline in their cost of capital. They find that firms with a high cost of capital tend to initiate a stand-alone CSR report and that, subsequently, they experience a reduction in the cost of equity capital under certain conditions. Dhaliwal et al. (2011) use a binary indicator to capture the presence or non-presence of a stand-alone report. In contrast, we use a continuous measure related to the content of all CSR disclosures. Simnett, Vanstraelen, and Chua (2009) examine the characteristics of firms that issue sustainability reports and voluntarily have them assured. They use an international sample drawn from 31 countries. Simnett et al. (2009) find that firms that have a greater need to enhance the credibility of their reports seek assurance. They find that firms in stakeholder-oriented countries (i.e. code law countries) are more likely to have their reports assured than firms in shareholderoriented countries (i.e. common law countries). Dhaliwal, Radhakrishnan, Tsang, and Yang (2012) use international data and find that CSR reports are more informative for analysts in stakeholder countries. We follow these two studies and employ cross-country data. However, rather than focusing on the assurance aspect or the effect on financial analysts, we re-examine the association between CSR disclosure and firm value. In conducting our tests, we emphasize that we are interested in CSR disclosure rather than CSR performance per se. That is, we examine how the extensiveness of voluntary CSR disclosures leads to economic benefits in terms of higher firm value. The extant literature suggests several channels through which this association may occur. First, if CSR disclosures portray the firm’s real environmental and social performance, that is, they are credible, CSR disclosures should reduce the information asymmetry between firms and their investors. However, if CSR disclosures are opportunistic or unappreciated by the market, CSR disclosures could be unrelated, or even negatively related, to firm value. In Dhaliwal et al. (2011), firms that initiate a 582 S....
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...More recently, De Villiers and Van Staden (2011) find that economic performance (measured using ROA) is negatively related to environmental disclosures in the annual report, while Clarkson et al. (2013) find that voluntary environmental disclosures in the five most polluting US industries are incrementally informative relative to toxic emissions data and that investors seem to use emissions data to assess firms’ risks. Similarly, in another study examining US firms, Plumlee et al. (2015) present evidence consistent with an association between voluntary environmental disclosure quality and a firm’s cost of equity capital and expected future cash flows....
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...Clarkson et al. (2008) find that firm size, firm performance, finan-...
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...dependent variable, Clarkson et al. (2008) incorporate the most comprehensive selection of independent variables (see, e....
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Posted Content•

Corporate Social Responsibility Research in Accounting

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Xiaobei “Beryl” Huang¹, Luke Watson²•Institutions (2)

Beijing Institute of Foreign Trade¹, Villanova University²

27 Feb 2015-Social Science Research Network

TL;DR: This paper reviewed research on corporate social responsibility (CSR) published in 13 top accounting journals over the last decade and summarized the accounting literature in these areas and comment on how accounting researchers can use their skill sets with regard to specific issues.

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Abstract: We review research on corporate social responsibility (CSR) published in 13 top accounting journals over the last decade. We begin with a brief discussion of the data that archival researchers have used to measure CSR. Next, we conduct our review in four parts: 1) determinants of CSR; 2) the relation between CSR and financial performance; 3) consequences of CSR; and 4) the roles of CSR disclosure and assurance. We summarize the accounting literature in these areas and comment on how accounting researchers can use their skill sets with regard to specific issues. Within each area, we present some suggestions for future CSR research in accounting.

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273 citations

Journal Article•DOI•

The Relationship between Sustainability Performance and Sustainability Disclosure – Reconciling Voluntary Disclosure Theory and Legitimacy Theory

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Katrin Hummel¹, Christian Schlick•Institutions (1)

Vienna University of Economics and Business¹

24 Jun 2016-Social Science Research Network

TL;DR: The authors refines the theoretical reasoning associated with the two theories and provides empirical evidence for their reconciliation by moving the focus of inquiry from the quantity of sustainability disclosure toward its quality, which is consistent with voluntary disclosure theory and legitimacy theory.

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Abstract: The relationship between sustainability performance and sustainability disclosure remains ambiguous, both theoretically and empirically. Voluntary disclosure theory would suggest that the relationship should be positive, whereas legitimacy theory points toward a negative relationship. However, the empirical evidence regarding this relationship is mixed, which indicates that the two theories are not necessarily contradictory but that they are instead two sides of the same coin. This paper refines the theoretical reasoning associated with the two theories and provides empirical evidence for their reconciliation by moving the focus of inquiry from the quantity of sustainability disclosure toward its quality. Our results reveal that – consistent with voluntary disclosure theory – superior sustainability performers choose high-quality sustainability disclosure to signal their superior performance to the market. In addition, based on legitimacy theory, poor sustainability performers prefer low-quality sustainability disclosure to disguise their true performance and to simultaneously protect their legitimacy. The results remain robust to various additional analyses. Thus, the paper indicates that the two theories dovetail with one another by redirecting the focus toward the quality of sustainability disclosure.

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263 citations

Cites background or result from "The relevance of environmental disc..."

...Although the results from previous investigations on the value relevance of sustainability disclosure in general are promising (Clarkson et al., 2013; Dhaliwal et al., 2012), the integration of the quality dimension of sustainability disclosure would add a new perspective to the ongoing discussion in this field of research....
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...…affects firm value.3 Although the results from previous investigations on the value relevance of sustainability disclosure in general are promising (Clarkson et al., 2013; Dhaliwal et al., 2012), the integration of the quality dimension of sustainability disclosure would add a new perspective to…...
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References

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Open Access

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Journal Article•DOI•

Sample Selection Bias as a Specification Error

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James J. Heckman

01 Jan 1979-Econometrica

TL;DR: In this article, the bias that results from using non-randomly selected samples to estimate behavioral relationships as an ordinary specification error or "omitted variables" bias is discussed, and the asymptotic distribution of the estimator is derived.

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Abstract: Sample selection bias as a specification error This paper discusses the bias that results from using non-randomly selected samples to estimate behavioral relationships as an ordinary specification error or «omitted variables» bias. A simple consistent two stage estimator is considered that enables analysts to utilize simple regression methods to estimate behavioral functions by least squares methods. The asymptotic distribution of the estimator is derived.

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23,995 citations

Journal Article•DOI•

Earnings, Book Values, and Dividends in Equity Valuation*

[...]

James A. Ohlson¹•Institutions (1)

Columbia University¹

01 Mar 1995-Contemporary Accounting Research

TL;DR: In this article, a model of a firm's market value as it relates to contemporaneous and future earnings, book values, and dividends is developed and analyzed, and two owners' equity accounting constructs provide the underpinnings of the model: the clean surplus relation applies and dividends reduce current book value but do not affect current earnings.

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Abstract: . The paper develops and analyzes a model of a firm's market value as it relates to contemporaneous and future earnings, book values, and dividends. Two owners' equity accounting constructs provide the underpinnings of the model: the clean surplus relation applies, and dividends reduce current book value but do not affect current earnings. The model satisfies many appealing properties, and it provides a useful benchmark when one conceptualizes how market value relates to accounting data and other information. Resume. L'auteur elabore et analyse un modele dans lequel il conceptualise la relation entre la valeur marchande d'une entreprise et ses benefices, ses valeurs comptables et ses dividendes actuels et futurs. Deux postulats de la comptabilisation des capitaux propres servent de charpente au modele: a) la relation du resultat global s'applique et b) les dividendes reduisent la valeur comptable actuelle sans influer, cependant, sur les benefices actuels. Le modele presente de nombreuses proprietes interessantes et il peut, fort utilement, servir de repere dans la conceptualisation de la relation entre la valeur marchande et les donnees comptables et autres renseignements.

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4,983 citations

Journal Article•

Disclosure level and the cost of equity capital

[...]

Christine A. Botosan

01 Jan 1997-Accounting review: A quarterly journal of the American Accounting Association

TL;DR: In this paper, the authors examined the relationship between disclosure level and the cost of equity capital by regressing firm-specific estimates of cost of capital on market beta, firm size and a self-constructed measure of disclosure level.

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Abstract: The effect of disclosure level on the cost of equity capital is a matter of considerable interest and importance to the financial reporting community However, the association between disclosure level and cost of equity capital is not well established and has been difficult to quantify In this paper I examine the association between disclosure level and the cost of equity capital by regressing firm-specific estimates of cost of equity capital on market beta, firm size and a self-constructed measure of disclosure level My measure of disclosure level is based on the amount of voluntary disclosure provided in the 1990 annual reports of a sample of 122 manufacturing firms For firms that attract a low analyst following, the results indicate that greater disclosure is associated with a lower cost of equity capital The magnitude of the effect is such that a one-unit difference in the disclosure measure is associated with a difference of approximately twenty-eight basis points in the cost of equity capital, after controlling for market beta and firm size For firms with a high analyst following, however, I find no evidence of an association between my measure of disclosure level and cost of equity capital perhaps because the disclosure measure is limited to the annual report and accordingly may not provide a powerful proxy for overall disclosure level when analysts play a significant role in the communication process

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3,621 citations

Journal Article•DOI•

Voluntary Nonfinancial Disclosure and the Cost of Equity Capital: The Initiation of Corporate Social Responsibility Reporting

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Dan S. Dhaliwal¹, Oliver Zhen Li², Albert Tsang³, Yong George Yang⁴•Institutions (4)

University of Arizona¹, National University of Singapore², Hong Kong Polytechnic University³, The Chinese University of Hong Kong⁴

04 Oct 2010-Social Science Research Network

TL;DR: In this article, the authors examine a potential benefit associated with the initiation of voluntary disclosure of corporate social responsibility (CSR) activities: a reduction in firms' cost of equity capital.

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Abstract: We examine a potential benefit associated with the initiation of voluntary disclosure of corporate social responsibility (CSR) activities: a reduction in firms’ cost of equity capital. We find that firms with a high cost of equity capital in the previous year tend to initiate disclosure of CSR activities in the current year and that initiating firms with superior social responsibility performance enjoy a subsequent reduction in the cost of equity capital. Further, initiating firms with superior social responsibility performance attract dedicated institutional investors and analyst coverage. Moreover, these analysts achieve lower absolute forecast errors and dispersion. Finally, we find that firms exploit the benefit of a lower cost of equity capital associated with the initiation of CSR disclosure. Initiating firms are more likely than non-initiating firms to raise equity capital following the initiations and among firms raising equity capital, initiating firms raise a significantly larger amount than do non-initiating firms.

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2,153 citations

Journal Article•DOI•

Revisiting the Relation Between Environmental Performance and Environmental Disclosure: An Empirical Analysis

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Yue Li¹, Peter Clarkson², Peter Clarkson³, Gordon D. Richardson¹, Florin P. Vasvari⁴ - Show less +1 more•Institutions (4)

University of Toronto¹, Simon Fraser University², University of Queensland³, London Business School⁴

05 Apr 2006-Social Science Research Network

TL;DR: In this article, the relationship between corporate environmental performance and environmental disclosure was investigated by testing economics-based theories of voluntary disclosure using a more rigorous research design, and they found a positive association between environmental performance with the extent of discretionary environmental disclosures.

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Abstract: Previous empirical evidence provided mixed results on the relationship between corporate environmental performance and environmental disclosures. We revisit this relation by testing economics based theories of voluntary disclosure using a more rigorous research design. In particular, we improve on the prior literature by focusing on purely voluntary environmental disclosures and by developing two reliable environmental performance measures using actual toxic emissions and waste management data. We also develop a content analysis index based on the Global Reporting Initiative sustainability reporting guidelines to assess the extent of discretionary disclosures in environmental and social responsibility reports. This index better captures firm disclosures related to its commitment to protect the environment than the indices employed by prior studies. Using a sample of 191 firms from the five most polluting industries in the U.S., we find a positive association between environmental performance and the extent of discretionary environmental disclosures. The result is consistent with the predictions of the economics based voluntary disclosure theory.

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2,050 citations