This paper examines the effect of environmental information on investment decisions. The results are based on an experiment in which groups of investors (varied by experience) were asked to make short- and long-term investment allocation decisions based on financial information and on supplementary environmental information (varied between cases). The results suggest that environmental information disclosure influences investment allocation decisions. The results also suggest that potentially mitigating factors such as the investment horizon and the experience level of investors affect investment allocation decisions, but the predicted main effect of positive environmental information holds across different investment horizons and investor types. Hence, the results are not attributable to interaction effects. Interestingly, compared to other company information, environmental information is not rated as being very important by participating subjects even though the results suggest that it influences investment decisions.
This paper focuses on the use of environmental information in investment decision making. The research approach employed is based on an experiment where three groups of final year finance students were asked to allocate investment funds between two companies based on financial accounts and information material from these companies in which environmental information was included in varying degrees. The overall conclusion is that the qualitative environmental information affects short term allocation decisions, hence indicating a risk reduction potential of environmental information comparable to the classic interpretation of financial information.The quantitative environmental information included in the experiment seems to mitigate rather than extend the directional effect of more environmental information. The evidence also seems to indicate that decision makers are not always aware which information categories affect their decision making. Hence, this has implications for how the potential value of environmental information is to be assessed. Finally, experimental studies as a methodology seem to be better suited to indicate actual effects of different types of information on decision making than attitude surveys.
Manuscript Type: EmpiricalResearch Question/Issue: The purpose of this study is to examine how differences in "ownership dispersion" and "exposure to the international capital market" affect the particular use of the corporate governance mechanisms "transparency" and "board independence" in listed companies. Research Findings/Insights: Our findings are based on a Danish dataset that includes 100 listed companies. We find that transparency is a more important corporate governance mechanism for companies with exposure to the international capital market, while differences in ownership dispersion do not affect the use of the transparency mechanism. In contrast, we find that board independence in the context of a two-tier board member system is an important corporate governance mechanism for companies with widely dispersed ownership and not for companies with exposure to the international capital market. Theoretical/Academic Implications: The relationships identified in our study contribute to improved understanding of the contextual relationship between good corporate governance and the companies' choice of corporate governance mechanisms within a given corporate governance system. This is important in order to interpret inconsistencies in prior research findings and provide insight for the design of future studies into the seemingly endogenous nature of many corporate governance relationships. Practitioner/Policy Implications: The requirement to adhere to the "comply or explain rules" for corporate governance has become commonplace for listed companies. The study provides insight into valid reasons for differences in compliance. Regulators and other capital market participants should acknowledge that companies may differ in their use of corporate governance mechanisms for various reasons, including differences in ownership dispersion and exposure to the international capital market.
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