Corporate Environmental Responsibility and Earnings Value Relevance

Abstract

The scope of this chapter is to examine the impact of CER related performance on firms’ financial reporting quality, proxied through the value relevance of accounting numbers (earnings and book values of equity), earnings persistence and predictability. The chapter extends previous evidence on earnings’ value relevance and persistence by utilizing a multi-country sample within the EU and by considering the indirect (moderating) effect of CER on the value relevance of accounting information. Empirical analysis suggested that CER performance alone does not have a significant impact on stock prices, something that contradicts several studies in other countries, but CER exerts a moderating impact on the value relevance of accounting numbers. Specifically, we found that high CER performing firms have earnings which are more persistent 1 year ahead, are more predictable (show less variability) and report profits and common equity figures which are positively impacting stock prices.