Corporate environmental initiatives in the Chinese context: Performance implications and contextual factors

Abstract

Although a number of studies have been conducted on the relationship between environmental management and firm performance, most of them are conducted in the Western context. Due to the unique social and economic environments in China, the performance implications of environmental management might be quite different in the Chinese context. We examine the impact of corporate environmental initiatives (CEIs) on the market value of firms in China. We find that, in contrast to the findings in the Western context, Chinese investors react negatively to CEI announcements. The negative reaction is more significant when the announcements are related to processes rather than products, and for state-owned enterprises rather than privately-owned corporations. However, there is no difference whether the CEI is self-declared or third-party endorsed. Overall, our research indicates that Chinese investors consider CEIs to be in conflict with shareholder interest. In particular, CEIs in state-owned enterprises might be considered by investors as signals that firms need to sacrifice profits to shoulder more social responsibility.

The Price of Environmental Sustainability: Empirical Evidence from Stock Market Performance in China

“…However, the market reacts negatively to voluntary emission reductions events in the US, and our result is more significant in both statistics (0.01 vs. 0.1) and in scale (−0.51% vs. −0.23%). Our result is consistent with the research works based on Chinese companies [18][19][20][21]. In our study, the mean abnormal return is 10.51% on Day 0, which is significant at the 0.01 level.…”

“…The stock market responds differently to announcements for firms with different ownership and industry characteristics. Lam et al [20] find that the Chinese investors react negatively to CEIs, which is different from the results of similar research in a western context. The above works only consider certain types of environmentally sustainable operations of Chinese listed firms.…”

“…Previous research based on US firms reveal positive stock market reactions to the announcements of environmental performance awards [15], environmental business strategies, environmental philanthropy, ISO 14001 certification [16] and negative stock market reactions to voluntary emission reductions [16,27] and environmental crises [15]. However, literature based on Chinese companies support negative stock market reactions to environmental violation events [18], environmental incidents [19], environmental performance awards [21] and CEIs [20]. In this study, a significant proportion of firms under consideration are from the manufacturing industry.…”

“…In our study, the mean abnormal return is 10.51% on Day 0, which is significant at the 0.01 level. The abnormal returns for the environmental incidents [19], the CEIs [20] and the environmental awards [21] are −0.41% (days [−1,0]), −0.28% (days[0,1]) and −0.6% (days[−1,1]), which are significant at the level of 5%, 5% and 10% respectively. Our result is more significant either in scale or in statistics.…”

“…The environmentally sustainable practice and market responses make their unique impacts to both the academia and practitioners. However, only a few papers [18][19][20][21] study how environmental performance affects shareholder wealth using data from Chinese listed companies. Xu et al [18] studies the stock market reaction to corporate environmental violation events.…”