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The Impact of Investments in Pollution Reduction on Shareholder Wealth: Evidence from Taiwanese Manufacturing Companies
Author(s) -
Chiu SheChih,
Lin HsuanChu,
Wang ChuanSan
Publication year - 2017
Publication title -
corporate social responsibility and environmental management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.519
H-Index - 73
eISSN - 1535-3966
pISSN - 1535-3958
DOI - 10.1002/csr.1436
Subject(s) - endogeneity , business , shareholder , economic value added , cash flow , value (mathematics) , profit (economics) , pollution , economics , finance , microeconomics , corporate governance , econometrics , machine learning , computer science , ecology , biology
This paper investigates the economic benefit of corporate pollution reduction expenditures and the value relevance of the Global Reporting Initiative (GRI) report. It utilizes a unique dataset of pollution reduction expenditures disclosed by Taiwanese manufacturing companies in their GRI reports. Economic profit is measured with Economic Value Added and Tobin's Q. The value relevance is measured with three benchmarks: stock returns, cash flows, and stock prices. The Generalized Method of Moments is adopted to control for potential endogeneity. This paper finds a positive relation between pollution reduction expenditure and corporate economic benefits, which suggests that managerial decisions aimed at pollution reduction are consistent with the interests of shareholders and of stakeholders. In addition, this paper finds that the G3.1 guideline provides relevant information in regard to firm value, while it plays merely a partial role in investors' investment decisions. Copyright © 2017 John Wiley & Sons, Ltd and ERP Environment