LEED certification and market value of the firm

Abstract

This article extends signalling theory to research on voluntary green standards adoption and investigates the firm's value in green buildings. The study analyses the market valuation of investments in sustainable buildings, measuring the market reaction to three different types of leadership in energy and environmental design (LEED) announcements: 1) intent for application; 2) achievement of certification; 3) reinforcement of certification. The study hypothesises the market will react differently to intent, achievement and reinforcement signals. Empirical evidence shows a positive market reaction to LEED announcements in general, with positive but not statistically significant market reaction to the intent signals, and positive and statistically significant reaction to the achievement and reinforcement signals. Theoretical and practical implications are discussed.