A selection of interesting articles we found recently considering environmental performance.

Market reactions to events related to corporate environmental performance: A meta-analysis 
Research on the relationship between corporate environmental performance (CEP) and corporate financial performance (CFP) has consistently grown and is gaining widespread attention. Given the vast body of CEP–CFP studies, recently scholars have begun to take stock of the cumulative results. However, no study so far has meta-analyzed the findings yielded by event studies assessing the stock market reactions to corporate environmental performance-related events (CEP-related events).

This paper sets out to close this gap by synthesizing previous empirical results regarding the stock market impact of positive and negative CEP-related events. Results indicate a positive relationship across studies in terms of positive market reactions to positive events and negative reactions to negative events. Furthermore, the findings show that the market reactions are stronger for negative events than for positive events (i.e., asymmetry in the stock market reaction). Finally, this study examines whether methodological artifacts (i.e., differences in the study designs) may explain the differences in the findings of the analyzed event studies.

Details are at: Endrikat, J. 2016. Market Reactions to Corporate Environmental Performance Related Events: A Meta-analytic Consolidation of the Empirical Evidence.
Journal of Business Ethics, 138(3), 535–548.


Environmental governance and environmental outcomes 
Environmental governance has emerged as a recent perspective to explain the link between corporate governance mechanisms and environmental performance such as pollution reduction. Kock and Min extend current models by incorporating the crucial role of the underlying institutional logics in terms of an a priori focus on either shareholder rights or stakeholder inclusion, which, in turn, can be traced back to the legal origin of a specific country.

Using data on a sample of common and civil law countries, the authors find support for our predictions that a shareholder-focused common law legal origin is associated with significantly higher emissions of CO2, and also that international environmental agreements like the Kyoto protocol seem to have a more pronounced effect in shareholder-centric economies than thus far assumed.

The full paper is at: Kock, C.J. & Min, B.S. 2016. Legal Origins, Corporate Governance, and Environmental Outcomes.
Journal of Business Ethics, 138(3), 507–524.


Negative media coverage and corporate pollution 
Sequences of individual words make up media reports. And sequences of media reports constitute the power of the news media to influence corporate practices. In this paper, Jia and colleagues focus on the micro-foundations of news reports to elaborate how an atmosphere of negative news reports following an initial exposure of corporate pollution activity can help stop such activity through their impact on corporate managers.

The researchers extend their understanding of the corporate governance effect of news media by considering two new aspects of reports—one, the proportion of words in negative reports relative to the total number of words in all reports; and two, the geographical origin of news media. Jia et al. suggest that the more negative the media coverage, and the more local this coverage, the greater the impact on corporations.

This study of news media reports from more than 600 newspaper sources on disciplining pollution activities of listed Chinese firms from 2004 to 2012 provides strong support for the research hypotheses. These findings have valuable implications for the handling of pollution issues in transitional economies via the power of news words.

The full paper is at: Jia, M., Tong, L., Viswanath, P.V. & Zhang, Z. 2016. Word Power: The Impact of Negative Media Coverage on Disciplining Corporate Pollution.
Journal of Business Ethics, 138(3), 437-458.


Institutional interest, ownership type, and environmental capital expenditures in China’s most polluting listed firms 
This study empirically examines whether firms’ environmental capital expenditures impact institutional investors’ investment decisions in the Chinese market. Li and Lu particularly examine the impact of ownership type on the relationship of environmental capital expenditures and the behavior of different types of institutional investors by classifying institutional investors into two categories, short-term and long-term investors.

In addition, this study further investigates whether environmental capital expenditures related to ownership type increase firm value. The researchers find that long-term institutional investors tend to invest in state-owned firms (SOEs) making environmental capital expenditures. Results also indicate that, with governmental backing and encouragement, the market value of SOEs making more environmental capital expenditures is likely to increase. However, no similar results are found for non-SOEs.

For more detail see: Li, W. & Lu, X. 2016.  Institutional Interest, Ownership Type, and Environmental Capital Expenditures: Evidence from the Most Polluting Chinese Listed Firms.
Journal of Business Ethics, 138(3), 459-476.


Political connections and industrial pollution in China 
Maung, Wilson and Tang investigate how state involvement in the ownership of non-listed entrepreneurial firms affects pollution fees levied by national and provincial governments in China (environmental levies). While the national government sets minimum environmental standards, provincial governments can enact requirements that exceed these minimums, and they are largely responsible for enforcing even the national standards, so environmental levies can measure concessions that provinces make to encourage development and employment.

Furthermore, state ownership is a good proxy for a firm’s political connections, which can influence the relationship between the firm and the environmental authorities. The authors find that firms with state ownership pay lower environmental levies, which indicates that concessions are made for political or economic purposes. However, these concessions are conditional on the level of development of the province offering them, with better developed provinces providing fewer concessions.

Read the full article for free.
Maung, M., Wilson, C. & Tang, X. 2016. Political Connections and Industrial Pollution: Evidence Based on State Ownership and Environmental Levies in China.
Journal of Business Ethics, 138(4), 649–659.


Corporate environmental responsibility and firm risk 
In this study, the authors examine the relation between corporate environmental responsibility (CER) and risk in U.S. public firms. They develop and test the risk-reduction, resource-constraint, and cross-industry variation hypotheses. Using an extensive U.S. sample during the 1991–2012 period, finding that for U.S. industries as a whole, CER engagement inversely affects firm risk after controlling for various firm characteristics.

The result remains robust when using firm fixed effect or an alternative measure of CER using principal component analysis or downside risk measures. To address the concern of endogeneity bias, the researchers use a system equations approach and dynamic system generalized methods of moment regressions, and continue to find that environmentally responsible firms experience lower risk.

These findings support the risk-reduction hypothesis, but not the resource-constraint hypothesis, along with the notion that the top management in U.S. firms is generally risk averse and that their CER engagement facilitates their risk management efforts. This cross-industry analysis further reveals that the inverse CER-risk association mainly comes from the manufacturing sector, whereas in the service sector, CER tends to increase firm risk.

Find out more at: Cai, L., Cui, J. & Jo, H. 2016. Corporate Environmental Responsibility and Firm Risk.
Journal of Business Ethics, 139(3), 563–594.