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

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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).
Publisher
MDPI
Issue Date
2020-09
Language
English
Article Type
Article
Citation

SUSTAINABILITY, v.12, no.17, pp.1 - 21

ISSN
2071-1050
DOI
10.3390/su12177209
URI
http://hdl.handle.net/10203/276636
Appears in Collection
MT-Journal Papers(저널논문)
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