The market valuation of environmental capital expenditures by pulp and paper companies

Clarkson, P. M., Li, Y. and Richardson, G. D. (2004) The market valuation of environmental capital expenditures by pulp and paper companies. Accounting Review, 79 2: 329-353. doi:10.2308/accr.2004.79.2.329

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Author Clarkson, P. M.
Li, Y.
Richardson, G. D.
Title The market valuation of environmental capital expenditures by pulp and paper companies
Journal name Accounting Review   Check publisher's open access policy
ISSN 0001-4826
Publication date 2004
Sub-type Article (original research)
DOI 10.2308/accr.2004.79.2.329
Volume 79
Issue 2
Start page 329
End page 353
Total pages 25
Editor T. Shevlin
Place of publication Sarasota, Florida, USA
Publisher American Accounting Association
Collection year 2004
Language eng
Subject C1
350101 Financial Accounting
770402 Land and water management
770401 Air quality
Abstract The objective of this study is to examine the market valuation of environmental capital expenditure investment related to pollution abatement in the pulp and paper industry. The total environmental capital expenditure of $8.7 billion by our sample firms during 1989-2000 supports the focus on this industry. In order to be capitalized, an asset should be associated with future economic benefits. The existing environmental literature suggests that investors condition their evaluation of the future economic benefits arising from environmental capital expenditure on an assessment of the firms' environmental performance. This literature predicts the emergence of two environmental stereotypes: low-polluting firms that overcomply with existing environmental regulations, and high-polluting firms that just meet minimal environmental requirements. Our valuation evidence indicates that there are incremental economic benefits associated with environmental capital expenditure investment by low-polluting firms but not high-polluting firms. We also find that investors use environmental performance information to assess unbooked environmental liabilities, which we interpret to represent the future abatement spending obligations of high-polluting firms in the pulp and paper industry. We estimate average unbooked liabilities of $560 million for high-polluting firms, or 16.6 percent of market capitalization.
Keyword Business, Finance
Environmental Capital Expenditures
Market Valuation
Environmental Accounting
Environmental Risk Management
Value-relevance Literature
Q-Index Code C1

Document type: Journal Article
Sub-type: Article (original research)
Collections: Excellence in Research Australia (ERA) - Collection
2005 Higher Education Research Data Collection
UQ Business School Publications
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Citation counts: TR Web of Science Citation Count  Cited 65 times in Thomson Reuters Web of Science Article | Citations
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Created: Wed, 15 Aug 2007, 03:21:39 EST