Can Carbon Footprint Disclosures Influence the Stock Price of Enterprises in China?

Transcription

1 Can Carbon Footprnt Dsclosures Influence the Stock Prce of Enterprses n Chna? Luo J Wang Yng School of Economcs and Management Schuan Unversy of Scence & Engneerng Zgong Schuan Chna Abstract Data of three Chnese areas from 2006 to 2011 were taken to nvestgate the nfluence of Company s carbon footprnt dsclosures on the capal market and the producton market. Abnormal returns (A) of the capal market changed from negatve to less posve after year However, carbon footprnt dsclosure had less sgnfcant but stll posve nfluence on the sales growth rate n the producton market. Accordngly, the carbon footprnt dsclosure s necessary for enterprses. Keywords: carbon footprnt dsclosure, abnormal return, sale growth rate 1. Introducton Many governments have developed clear carbon reducton targets (Grossman and Krueger, 1995; Ganapat and Lu, 2008; Partrdge and Gamkhar, 2010), along wh relevant legslaton and carbon reducton polces. However, s costly for enterprses to nvest n envronmental protecton programs (Ingram and Frazer, 1980; Freedman and Jagg, 1982; Walley and Whehead, 1994). Carbon emsson reducton through strateges such as ncreased waste recyclng and the use of renewable materals must generate enough value to motvate enterprses to nvest n them. The exstng lerature has hghlghted the mportance of carbon emsson reducton (Wse et al., 2009). Studes have ndcated that the ncreased recyclng of waste and used materals can benef enterprses both nternally and externally. Internally, enterprses can benef from the reduced materals and producton costs. Externally, enterprses that undertake carbon emsson reducton projects could lessen the concerns of the authores and nvestors regardng envronmental protecton. Furthermore, the stakeholders carbon emsson reductons also benef enterprses n terms of the producton market (Brown and Dacn, 1997; Sen and Bhattacharya, 2001). For example, carbon-reducng frms may benef from government regulatons regardng the envronment, ncreased competve advantage, and better access to capal (Côté, Booth, and Lous, 2006). Are these benefs certan enough to cover the large related costs that enterprses must pay? Extant studes do not provde a clear answer (Corbett and Klassen, 2006). Carbon footprnt dsclosure s one of the man carbon emsson reducton strateges. The carbon footprnt s the total amount of CO 2 and other greenhouse gases (GHG) eed over the full lfecycle of a process or product (U. K. Parlamentary Offce of Scence and Technology, 2006). Frms carbon footprnt dsclosure announcements contan nformaton that s drectly related to the product or servce provded by the company, and ths nformaton regardng the product s carbon footprnt becomes avalable to the consumer. Ths may change consumers' conscousness of the envronmental mpacts of products that could be msperceved as beng relatvely harmful or bengn n terms of the envronment. Whle frms are wllng to announce ther products footprnts, ths meanng that they must attempt to perform better than other frms n ths regard. If consumers could learn how much carbon emsson s assocated wh ther consumpton and carbon emssons could become a part of ther consumpton decsons, both GHG emssons and carbon-reducng frms could benef. Carbon-reducng frms mght enhance ther reputatons (Orlzky, Schmdt, and ynes, 2003) and accumulate moral capal (Godfrey, 2005; Peloza, 2006; Godfrey, Merrll, and Hansen, 2009). 73

2 ISSN (Prnt), (Onlne) Center for Promotng Ideas, USA Furthermore, consumers would be lkely to pay hgher returns (Brown and Dacn, 1997; Creyer and oss,1997; Sen and Bhattacharya,2001),develop dfference awareness (McWllams and Segel,2001) regardng the carbonreducng efforts of specfc corporatons, and thus prefer to contnue to consume ther products (Smh and Alcorn, 1991). Fnally, these corporatons have better fnancal and operatonal performance (Horváthová, 2010; Chen and Delmas, 2011). Ths study appled an event study methodology to changes n the A of corporate share prces after carbon-reducng acton announcements to explore the vews of the partes of nterest on varous carbon-reducng actons, n addon to the mpact of nvestor valuaton of corporate announcements of carbonreducng actons on corporate market value. Compared to other carbon emsson reducton strateges, carbon footprnt dsclosure s less costly than mprovng the producton process or revampng equpment. Thus, carbon footprnt dsclosure has an external benef. Ths paper ams to determne how nvestors and consumers react to carbon footprnt dsclosure by observng abnormal returns and the subsequent sales growth. 2. Methods The event study methodology was frst proposed by Ball and Brown (1968) and Fama et al. (1969), and was manly desgned to nvestgate whether certan events (corporate dvdend declaratons or earnngs statements) would trgger abnormal changes n stock prces, thus leadng to abnormal returns (As). As are also called excess returns, predcton errors, or resduals. Ths nformaton can be used to understand whether the market prce of a secury s assocated wh a partcular event. It manly uses statstcal methods to test the status of an A, that s, to determne whether the expected A s zero. The null hypothess s H 0 : E( event) E( ) 0, where E( event ) and E( ) represent the expected rate of return wh and whout the occurrence of event, respectvely, n order to understand whether such an event could have an mpact on the corporate share prce. In addon to As, ths study also consdered the cumulatve abnormal return (CA) varable to determne the cumulatve effects of an event over a certan perod. In general, the event study methodology used to estmate the expected return on a stock s manly dvded nto mean adjusted return, market-adjusted return, and market model return. Accordng to the market model return method, the expected rate of return of corporate shares s expressed as shown n Eq. (1): (1) Where represents the rates of return on the stock of company durng perod t, of the market portfolo durng perod t, and s the ntercept. represents the daly return s the market rsk-free rate of return durng perodt, measures the systematc rsk of the corporate stock durng perod t, and s the error term. In terms of A calculaton, after usng Eq. (1) to determne the expected daly return rate of company ' s stock durng perod t, whch s then compared to the actual daly return rate of company ' s stock on the day of the carbonreducng acton announcement, the dfference obtaned s the A resultng from company ' s carbon reducton announcement, as n Eq. (2): A ˆ ( ˆ ˆ ) (2) Also, CA s smply the accrued daly A of a specfed perod, as n Eq. (3): CA E E A (3) j1 j Where E s the selected perod for calculatng CA. The defnons of all related varables and the correspondng data resources are presented n Table 1. In addon to observng corporate share prces after carbon footprnt dsclosure announcements, ths study also used the change n sales growth to measure the producton market reacton. To avod the mpact of outlers on stock returns, we used a 90 percent wnsorsaton to replace the observatons from the 5th percentle and below, as well as from the 95th percentle and above. Ths study uses the data of non-fnancal lsted companes from Tawan, Hong Kong, and Chna, shown n Table 1. The number of sample companes s 1571, and the number of carbon footprnt dsclosure announcements s

3 3. esults and Dscusson All samples of the dstrbuton status and descrptve statstcs for each country regardng carbon footprnt dsclosure announcements are lsted n Table 2. The total numbers of carbon footprnt dsclosure announcements for the countres are as follows: Hong Kong had 26, Tawan had 21, and Chna had 42. Table 3 shows A, CA, and sales growth rate after the frms carbon footprnt dsclosure durng , Table 4 shows the sgnfcant changes lnked to the frms carbon footprnt dsclosure. In Table 3, we set the event wndow to be three days or fve days from the announcement date to calculate the abnormal return resultng from the carbon footprnt dsclosure. Table 3 shows that neher the abnormal return nor the cumulatve abnormal returns for carbon footprnt dsclosure announcements are sgnfcant before 2012(2008, 2009, 2010, and 2011).on the other hand, the abnormal return n emergng countres was only sgnfcantly posve n There was no sgnfcant change n the sales growth rate after carbon footprnt dsclosure. In Table 4, we compared the abnormal return and the change n the sales growth rate for each year. Table 4 also shows that the abnormal stock return and the change n sales growth mproved over tme. The dfference between the abnormal return and the change n sales growth n 2008 and those n 2013 s sgnfcant. However, the extent of the ncrease s lmed. 4. Concluson Ths study tested the reacton of the capal market and the producton market to frms carbon footprnt dsclosures. Based on our emprcal results, the market reacton to carbon footprnt dsclosures s not sgnfcant. After 2012, the stock market reacton to carbon footprnt dsclosure and the ncrease n abnormal returns were sgnfcantly posve, but the magnude of the abnormal returns was small. There was no sgnfcant ncrease n sales. Market nvestors are especally nterested n whether corporate decson brngs drect and sgnfcant profs. Investors obvously have ther doubts regardng the prof generated by carbon footprnt dsclosure because there s no sgnfcant mprovement n the sales growth rate after carbon footprnt dsclosure. When we observe the evdence over the long run, there s no sgnfcant sales growth from 2008 to 2013 for frms that announced carbon footprnt dsclosure. However, the abnormal stock return ncreased sgnfcantly for carbon footprnt dsclosure announcements. The results show that nvestors stll expect potental profs from carbon footprnt dsclosure; even there s no sgnfcant ncrease n sales growth. A further pont of nterest s how frms treat the market reacton. Accordng to voluntary dsclosure theory (Mlgrom, 1981; Verreccha, 1994), frms wh superor performance have more motvaton to dsclose nformaton. Our results mply that the market reacton s mnor, even for frms wh a lower carbon footprnt. The Carbon Emssons educton Act s voluntary. Because the market reacton s mnor now, may be necessary to adopt a more aggressve polcy to provde frms wh motvaton to dsclose ther carbon footprnts. In other words, the government could attempt to ncrease the prof of frms that dsclose ther carbon footprnts. PAS 2050, created by the Brsh Standards Instuton, and ISO 14067, created by the Internatonal Organzaton for Standardzaton, are nfluental producton regulatons n every country. Furthermore, the government could provde preferental tax treatment for frms that dsclose ther carbon footprnts or set restrctons on the sale of products whout carbon footprnt dsclosure. These are the feasble strateges that governments can use to promote carbon emsson reducton. Accordng to the results, the magnude of the abnormal returns was small, and there was no sgnfcant ncrease n sales growth. However, accordng to the dscusson wh Brown and Dacn (1997), Sen and Bhattacharya (2001), and Côté, Booth and Lous (2006), the certanty and sze of the benefs to carbon-reducng frms are not great enough to cover the related costs. However, through carbon footprnt dsclosure, consumers can learn how much carbon emssons are assocated wh ther consumpton, and carbon emssons can become a part of ther consumpton decsons (Lmnos et al., 2009). We thnk that carbon-reducng frms should have optmstc expectatons for the future. 75

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5 Table 1: Varables, Defnons, and Data Sources Varable Notaton Defnon Stock return of The rates of return on the stock of company n perod t company Stock return of market The daly return of a market portfolo n perodt ; s also the market rsk-free rate of return n perodt Intercept Intercept Systematc rsk The systematc rsk of corporate stock n perodt Error term Error term Abnormal return A The market prce of a secury s assocated wh a partcular event; s the dfference between the actual return of a secury and the expected return on the event day Cumulatve abnormal return CA The market prce of a secury s assocated wh a partcular event; s the sum of all the dfferences between the actual return of a secury and the expected return up to a gven pont n tme Table 2: Carbon Footprnt Dsclosure Announcement Dstrbuton Suaton and Descrptve Statstcs of A Descrptve statstcs of A and CA Chna Hong Tawan Kong Average A of the frms carbon footprnt dsclosure Max A of the frms carbon footprnt dsclosure Mn A of the frms carbon footprnt dsclosure Average CA (3,3) of the frms carbon footprnt dsclosure Max CA (3,3) of the frms carbon footprnt dsclosure Mn CA (3,3) of the frms carbon footprnt dsclosure Average CA (5,5) of the frms carbon footprnt dsclosure Max CA (5,5) of the frms carbon footprnt dsclosure Mn CA (5,5) of the frms carbon footprnt dsclosure Number of lsted sample companes Number of announced companes Percentage % Table 3: A, CA, and Sales Growth ate after the Frms Carbon Footprnt Dsclosure: 2008 to 2013 Type of sample A (%) * * CA (3, 3) (%) * * CA (5, 5) (%) * * Dfference n sales growth rate Table 4: Sgnfcant Changes Lnked to the Frms Carbon Footprnt Dsclosure Type of sample 2008~ ~ ~ ~ ~ ~ 2014 A (%) * * CA (3, 3) (%) * * * CA (5, 5) (%) * dfference n sales growth rate