The value relevance of environmental emissions

Melinda Lydia Nelwan


This study examines whether environmental performance has value relevance by investigating the relations between environmental emissions and stock prices for the U.S. public companies. The previous studies argued that the conjectured relations between accounting performance measures and environmental performance do not have a strong theoretical basis, and the modeling of relations between market per-formance measures and environmental performance do not adequately consider the relevance of accounting performance to market value. Therefore, this study examines whether publicly reported environmental emissions provide incremental information to accounting earnings in pricing companies stocks. It is done among the complete set of industries covered by Toxics Release Inventory (TRI) reporting for the period 2007 to 2010. Using Ohlson model but modified to include different types of emis-sions, it is found that ground emissions (underground injection and land emissions) are value relevant but other emission types (air and water and transferred-out emis-sions) appear to not provide incremental information in the valuation model. The result in this study raise concerns that different types of emissions are assessed differently by the market, confirming that studies should not aggregate such measures.


Accounting Earning; Environmental Emissions; Environmental Performance, and Value Relevance

Full Text:



Banker, RD, Huang, R & Natarajan, R 2009, 'Incentive contracting and value relevance of earnings and cash flows', Journal Of Accounting Research, 47 (3), pp. 647678.

Becker, R & Vernon, H 2000, 'Effects of air quality regulations on polluting industries', Journal of Political Economy, 108(2), pp. 379421.

Bosworth, W & Clemens, B 2011, 'Does It Pay to Be Environmentally Responsible? Toxic Releases and Financial Performance', Journal of Strategic Innovation and Sustainability, 7(2), pp. 115121.

Carlin, A, Scodari, PF & Garner, DJ 1992, 'Environmental investments: The cost of cleaning up', Environment, 34(2), pp. 1212.

Cho, CH, Patten, DM & Roberts, RW 2006, 'Corporate political strategy: An examination of the relation between political expenditures, environmental performance, and environmental disclosure', Journal of Business Ethics, 67(2), pp. 139154.

Clarkson, PM et al. 2008, 'Revisiting the relation between environmental performance and environmental disclosure: An empirical analysis', Accounting, Organizations and Society, 33(4-5), pp. 303327.

Clarkson, PM, Li, Y & Richardson, GD 2004, 'The Market Valuation of Environmental by Pulp Expenditures Valuation Paper Companies', The Accounting Review, 79(2), pp. 329353.

Clarkson, PM, Overell, MB & Chapple, L 2011, 'Environmental Reporting and its Relation to Corporate Environmental Performance', Abacus, 47(1), pp. 2760.

Duncombe, T, Schnackenback, J & Henderson, K 2008, 'Environmental crimes', The American Criminal Law Review, 45(2), pp. 381464.

Hamilton, JT 1995, 'Pollution as news: Media and stock market reactions to the toxics release inventory data, Journal of Environmental Economics and Management, 28 (1), pp. 98113.

Harrison, K & Antweiler, W 2003, 'Incentives for pollution abatement: Regulation, regulatory threats, and non-governmental pressures', Journal of Policy Analysis and Management, 22(3), pp. 361361.

Hassel, L, Nilsson, H & Nyquist, S 2005, 'The Value Relevance of Environmental Performance', European Accounting Review, 14(1), pp. 4161.

Hughes II, KE 2000, 'The Value Relevance of Nonfinancial Measures of Air Pollution in the Electric Utility Industry', The Accounting Review, April 2000, Vol. 75, No. 2, pp. 209-228.

Johnston, D & Rock, S 2005, 'Earnings management to minimize superfund clean-up and transaction costs', Contemporary Accounting Research, 22(3), pp. 617642.

Kiel, K & Zabel, J 2001, 'Estimating the economic benefits of cleaning up Superfund sites: The case of Woburn, Massachusetts', Journal of Real Estate Finance and Economics, 22(2), pp. 163184.

King, A & Lenox, M 2002, 'Exploring the Locus of Profitable Pollution Reduction', Management Science, 48(2), pp. 289299.

Lin, L, Moon, JJ & Yin, H 2014, 'Does international economic integration lead to a cleaner production in China?', Production & Operations Management, 23(4), pp. 525536.

Magness, V 2006, 'Strategic posture, financial performance and environmental disclosure: An empirical test of legitimacy theory', Accounting, Auditing & Accountability Journal, 19 (4), pp. 540563.

Moneva, JM & Cuellar, B 2009, 'The value relevance of financial and non-financial environmental reporting', Environmental and Resource Economics, 44(3), pp. 441456.

Nichols, DC & Wahlen, JM 2004, 'How Do Earnings Numbers Relate to Stock Returns ? A Review of Classic Accounting Research', Accounting Horizons, 18 (4), pp. 263286.

Ohlson, JA 1995, 'Earnings, book values, and dividends in equity valuation', Contemporary Accounting Research, 11(2), pp. 661686.

Patten, DM & Trompeter, G 2003, 'Corporate responses to political costs: An examination of the relation between environmental disclosure and earnings management', Journal of Accounting and Public Policy, 22(1), pp. 8394.

Peltier-Rivest, D & Swirsky, S 2000, 'Earnings management in healthy firms, Quarterly Journal of Business and Economics, 39(4), pp. 2137.

Porter, ME & Linde, C 1995, 'Toward a new conception of the environment-competitiveness relationship', Journal of Economic Perspectives, 9(4), pp. 97118.

Russo, MV & Fouts, PA 1997, 'A resource-based perspective on corporate environmental performance and profitability', Academy of Management Journal Jun, 40(3), pp. 534559.

Sueyoshi, T & Goto, M 2009, 'Can environmental investment and expenditure enhance financial performance of US electric utility firms under the clean air act amendment of 1990?', Energy Policy, 37(11), pp. 48194826.

Thomas, S Repetto, R & Dias, D 2007, 'Integrated Environmental and Financial Performance Metrics for Investment Analysis and Portfolio Management', Corporate Governance: An International Review, 15(3), pp. 478485.

Venter, ER, Emanuel, D & Cahan, SF 2014, 'The value relevance of mandatory non-GAAP earnings', ABACUS, 50(1), pp. 124.

Wilson, JHJ et al. 2008, 'Emission Projections for the U.S. Environmental Protection Agency Section 812 Second Prospective Clean Air Act Cost/Benefit Analysis', Journal of the Air & Waste Management Association, 58(5), pp. 657 672.

Wilson, M & Shailer, G 2007, 'Accounting manipulations and political costs: Tooth & Co Ltd, 1910-1965', Accounting and Business Research, 37(4), pp. 247266.

Yip, E, Van Staden, C & Cahan, S 2011, 'Corporate Social Responsibility Reporting and Earnings Management: The Role of Political Costs', Australasian Accounting Business and Finance Journal, 5(3), pp. 1733.



  • There are currently no refbacks.

Copyright (c) 2016 Journal of Economics, Business, and Accountancy | Ventura

The 6th International Conference on Business and Banking (ICBB) VI


Abstracting & Indexing


Hasil gambar untuk ccbyncsa

Copyright @ 2010 Pusat Penelitian dan Pengabdian Masyarakat Sekolah Tinggi Ilmu Ekonomi (PPPM STIE)