Environmental Pollution and Firm Value: Theory and Empirical Evidence
TANG Song, SHI Wen, SUN Anqi
School of Accountancy, Shanghai University of Finance and Economics; R&D Department, Shanghai Headquarters, China Central Depository & Clearing Co., Ltd.; Listed Company Supervision Department I, Shanghai Stock Exchange
Summary:
China's “extensive growth” development model has led to increasingly serious environmental problems and constrained the sustainable development of the economy. The numerous incidents of severe environmental pollution have also had significant negative impacts on society. Accordingly, the environmental issues associated with economic development have been receiving increasing public and government attention. In addition to being important participants in the economy, enterprises are one of the main sources of environmental pollution. Therefore, it is of great practical significance to understand the economic consequences and mechanisms of environmental pollution at the micro-enterprise level. Although numerous studies have examined this issue, so far no consensus has been reached (Cormier et al. 1993; Karpoff et al. 2005). Moreover, many institutions in China, such as those relating to the environmental responsibilities of companies, government supervision, and the enforcement of laws, differ from those in Western countries (Dasgupta et al. 2001). Therefore, it is of significant theoretical and academic value to explore the economic consequences and mechanisms of the environmental pollution in China. Using a sample of 71 reports of incidents of environmental pollution by listed companies in China from 2005 to 2015, this paper finds that the firm value of listed companies declines significantly after the reports of incidents of environmental pollution are published. Specifically, the market value of the listed companies falls by an average of 1.51% on the day the incidents of environmental pollution are reported. Further analysis also shows that listed companies are more likely to be subject to environmental supervision and government sanction after incidents of environmental pollution are reported, and have greater difficulty obtaining bank debt financing. The changes in the levels of government environmental supervision and debt financing are also significantly related to the cumulative abnormal returns of corporate stocks during the reporting window of pollution incidents. This suggests that investors rationally anticipate the adverse consequences of incidents of environmental pollution and respond negatively to the news. In addition, the increased government supervision after the reporting of pollution incidents is more evident in areas with high needs for public environmental protection, and after the tightening of the government environmental protection policies in 2010. Moreover, the reduction in debt financing is more likely to occur after the tightening of the government environmental protection policies in 2010. The results of this paper have several policy implications in relation to the control of environmental pollution in China. First, the government should further enhance the public awareness of the need for environmental protection. To enhance the supervisory role of the public and the media, the government should also vigorously encourage the media to report environmental problems in a timely and objective manner. Second, the relevant government departments should further use administrative and financial means to strengthen the supervision and restraint of the environmental pollution from enterprises. Third, government departments should adhere to the principles of fairness and openness when enforcing environmental protection laws and credit resource allocation. This paper contributes to the literature in several ways. First, the paper proposes and empirically tests the unique mechanisms of the effects of incidents of environmental pollution on the firm value of listed companies, which are government supervision and access to debt financing. Second, this paper investigates the relationship between the reporting of environmental pollution and firm value over a long sample period and using a rigorous research design, and thus makes a useful addition to the literature on the relationship between the reporting of environmental pollution and firm value in China. Third, this paper presents an innovative analysis of the heterogeneity of the economic consequences of incidents of environmental pollution among different firms. We plan to explore other possible mechanisms of the effects of environmental pollution on firm value in future studies.
唐松, 施文, 孙安其. 环境污染曝光与公司价值——理论机制与实证检验[J]. 金融研究, 2019, 470(8): 133-150.
TANG Song, SHI Wen, SUN Anqi. Environmental Pollution and Firm Value: Theory and Empirical Evidence. Journal of Financial Research, 2019, 470(8): 133-150.
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