Value Relevance of Corporate Environmental Performance: A Comprehensive Analysis of Performance Indicators Using Korean Data

Hyunwoo Choi, Ingoo Han and Jaywon Lee
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Hyunwoo Choi: Agenda Research, NAVER, Seongnam 13561, Korea
Ingoo Han: College of Business, Korea Advanced Institute of Science and Technology (KAIST), Seoul 02455, Korea
Jaywon Lee: College of Business Administration, Sejong University, Seoul 05006, Korea

Sustainability, 2020, vol. 12, issue 17, 1-25

Abstract: This paper examines the value relevance of corporate environmental performance (CEP) using individual environmental performance indicators and multidimensional constructs derived from Trumpp et al. (2015). Accounting information can be described as ‘value-relevant’ when the information in financial statements has the ability to explain firm value. In recent years, stakeholders such as governments, public institutions, firms, customers, and local communities have recognized the importance of corporate environmental performance. Thus, one of the main research questions is whether corporate environmental performance is value relevant. The empirical results in this paper indicate that only a few individual environmental performance indicator variables are value relevant, while most environmental performance constructs have a significant impact on firm value. Our findings suggest that firm value significantly increases with improved environmental management or operational performance. In addition, environmental performance indicators and environmental performance constructs have a significant impact on firms in environmentally sensitive industries, confirming the notion of higher value relevance of environmental information for firms in these industries. This study contributes to prior literature by carrying out a comprehensive analysis on the multidimensional nature of corporate environmental performance and its impact on value relevance. This paper also reconciles extant literature on the construct validity of environmental performance indicators and environmental performance constructs by formulating standardized composite measures of CEP following Larker et al. (2007).

Keywords: corporate environmental performance; multidimensionality; value relevance; ohlson model (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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