Disclosure effects, carbon emissions and corporate value

Abstract

Purpose – The main purpose of this study is to examine the impact of corporate carbon emissions and disclosure on corporate value, especially regarding whether disclosure helps to reduce uncertainty in valuation as predicted by carbon emissions using a unique data set on Japanese companies. Design/methodology/approach – Empirical analysis of the relations between corporate carbon emissions using compulsory filing data to Japanese Government covering more than 1,000 firms, corporate carbon management disclosure (CDP disclosure), and the market value of equity. Findings – The authors find that corporate carbon emissions have a negative relation with the market value of equity, the disclosure of carbon management has a positive relation with the market value of equity, and the positive relation between the disclosure of carbon management and the market value of equity is stronger with a larger volume of carbon emissions. Practical implications – The results may be important when considering the inclusion of carbon disclosure as a component of nonfinancial disclosure. In addition, the findings encourage Japanese companies to reduce carbon emissions and to disclose their carbon management activities. Originality/value – The authors provide the first empirical evidence of an interactive effect between the volume of carbon emissions and carbon management disclosure on the market value of equity. And, the results concerning the relation between environmental performance, disclosure, and market value are readily generalizable, especially as all companies emit carbon, either directly or indirectly. In addition, the results are arguably free of problems with sampling bias and endogeneity as the authors employ data obtained from the compulsory filing of carbon emissions information.

The Impact of Climate Change Risks on Firm Value: Evidence from the Korea

“…Since the amount of emissions is generally proportional to the size of a firm, the volume of emissions is divided by revenue, in line with previous studies (Chapple et al, 2013;Saka and Oshika, 2014;Choi and Noh, 2016;Jung et al, 2016). In addition, since GHG emission is largely affected by the characteristics of the industry (Chapple et al, 2013;Saka and Oshika, 2014;Jung et al, 2016) in which a company operates, the emission level is also examined in comparison to the industry average. The amount of energy consumption shown in the reports is also adjusted for total revenue to investigate the link between a company's energy consumption and its value.…”

“…Recent studies that measure a company's environmental performance as the level of carbon emissions report that companies with lower emission levels, those with better environmental performances, usually have a higher firm value (Chapple, Clarkson, and Gold, 2013;Matsumura et al, 2014;Saka and Oshika, 2014). Wagner et al (2002) investigate the relationship between the environmental and financial performance of European paper manufacturers using environmental performance indices, namely, ROS(return on sales), ROE(return on equity), and ROCE(return on capital employed).…”

“…In their study, they used the data generated from the Energy Policy Act established in 1992 and find that participants in the program reported only successful reductions in emissions and did not disclose the overall carbon emission. Saka and Oshika (2014) perform a study on Japan's mandatory disclosure. Japan legalized the mandatory disclosure of GHG emissions in 1998 and began disclosing the information at a company level in 2006.…”

Carbon information disclosure of enterprises and their value creation through market liquidity and cost of equity capital

“…Saka and Oshika (2014) explored that the increasing level of market liquidity will keep more stable stock price and decrease the volatility of stock price. So, stock volatility is negatively related to firm value, relative stability stock prices is good for the enhancement of firm value.…”

“…Many environmental studies have analyzed the benefits carbon information disclosure brought to enterprise value creation (Chapple, Clarkson & Gold, 2013;Griffin, Lont & Sun, 2011;Nishitani & Kokubu, 2012;Saka & Oshika, 2014). However, these researches might have some limitations.…”