Working Paper: CEPR ID: DP6698
Authors: Karen Fisher-Vanden; Karin S. Thorburn
Abstract: Researchers debate whether environmental investments reduce firm value or can actually improve financial performance. We provide some first evidence on shareholder wealth effects of voluntary corporate environmental initiatives. Companies announcing membership in Climate Leaders and Ceres - two voluntary environmental programs related to climate change - experience significantly negative abnormal stock returns. The price decline is smaller in carbon-intensive industries, where regulatory actions are more likely, and for high book-to-market firms, suggesting that "green" expenditures crowd out growth-related investments. We also document insignificant announcement returns for portfolios of industry rivals. Overall, the environmental investments appear to conflict with shareholder value-maximization. This has far reaching implications since the U.S. government relies on voluntary initiatives to reduce the emissions of greenhouse gases.
Keywords: capital expenditures; climate change; corporate social responsibility; environmentally responsible investing; shareholder wealth
JEL Codes: G31; G38; Q5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Negative abnormal stock returns (G17) | Shareholder wealth (G39) |
| Stock price decline is less severe for firms in carbon-intensive industries (L16) | Anticipated regulatory actions (G18) |
| Stock price drop is greater for firms with a high book-to-market ratio (G32) | Perceived resource reallocation from growth-related investments to environmental initiatives (F64) |
| Price of oil (Q31) | Announcement returns (E60) |
| Membership in Climate Leaders and Ceres programs (Q29) | Negative abnormal stock returns (G17) |