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Title: Voluntary Corporate Environmental Initiatives and Shareholder Wealth

Author(s): Karen Fisher-Vanden and Karin S Thorburn

Publication Date: February 2008

Keyword(s): capital expenditures, climate change, corporate social responsibility, environmentally responsible investing and shareholder wealth

Programme Area(s): Financial Economics

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.

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Bibliographic Reference

Fisher-Vanden, K and Thorburn, K. 2008. 'Voluntary Corporate Environmental Initiatives and Shareholder Wealth'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=6698