Accounting and Market Value Implications of Business Environmental Initiative: The Case of JSE’s SRI Firms

Thomas A. Worae () and Collins C. Ngwakwe ()
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Thomas A. Worae: University of Limpopo
Collins C. Ngwakwe: University of Limpopo

Acta Universitatis Danubius. OEconomica, 2018, issue 14(4), 88-98

Abstract: The paper examines environmental friendliness, measured by emissions intensity and energy usage intensity on accounting and market value, measured by return on asset, return on sale, equity returns and market value of equity deflated by sale of JSE’s SRI firms for the period 2008-2014. Applying differenced Arellano-Bond DPD estimations, we cited shortcomings of some previously applied methods used to examine environmental performance effect on corporate financial performance. Our pooled data result showed a negative effect of energy usage intensity on return on asset and return on sale, but a positive effect on market value of equity deflated by sale. Contrary, emissions intensity showed positive effect on return on asset and return on sale, but a negative effect on market value of equity deflated by sale. When the paper accounts for omitted variable bias, environmental friendliness exhibited insignificant effect on all financial measures. After we control for omitted variable bias and possible orthogonality conditions we found negative effect of energy usage intensity on equity returns and a positive effect of emissions intensity on market value of equity deflated by sale.

Keywords: Financial performance; emissions intensity; energy intensity; South Africa (search for similar items in EconPapers)
Date: 2018
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