An empirical investigation of environmental performance and the market value of JSE listed companies
Thesis (MBA)--Stellenbosch University, 2015.
ENGLISH ABSTRACT: In the recent past, there has been increasing awareness of, and concern for, the impact that many companies are having on the natural and social environment. This has seen the emergence of a triple bottom line approach to business, with environmental and social metrics being used in addition to financial metrics when evaluating company performance. Despite the growing level of investment in corporate sustainability, it is not clear whether these investments are viewed positively by the market, and to what extent it creates shareholder value. To shed light on the relationship between environmental performance and financial performance, this research assignment used the event study methodology to investigate whether there is statistically significant stock market reactions to announcements relating to the environmental performance of companies listed on the Johannesburg Stock Exchange. A total of 260 news announcements related to environmental performance were collected from a variety of news sources. The 260 news announcements represented 67 different companies across 11 different industry sectors. News announcements were collected from several prominent business news sources including the Business Day, Financial Mail and the Johannesburg Stock Exchange News Service. Abnormal share returns were estimated for a three day event window around the announcement date by using the market model approach. Results were aggregated based on four different categories of environmental performance, including corporate environmental initiatives, environmental awards and certificates, negative environmental publicity and, environmental reporting, permits and licences. Consistent with related research in developed countries, this study found that the market rewards certain categories of positive environmental performance but penalises certain categories of negative environmental performance more severely. The results show that there is a significant positive market reaction to announcements of corporate environmental initiatives on the trading day following the announcement. This result indicates a positive relationship between corporate environmental initiatives and financial performance, as measured by market value. In terms of negative environmental performance, it was found that the market responds negatively to the broad category of negative environmental publicity. In particular, negative announcements from civil society and environmental groups seem to result in more significant market reactions than negative announcements from local or national government. In contrast to some studies done in developed countries, no statistically significant relationship was found between announcements of environmental awards and certificates and the market value of companies. Neither was there a statistically significant relationship between environmental reporting, permits and licences and the market value of companies. These results therefore indicate that the market is selective in its response to announcements of environmental performance.