The Value Relevance of Corporate

The value relevance of corporateresponsibility reporting:South African evidence

Marna de KlerkUniversity of Pretoria, Pretoria, South Africa, and

Charl de VilliersThe University of Waikato, Hamilton, New Zealand and University of Pretoria,

Pretoria, South Africa

Abstract

Purpose – Corporate responsibility reporting (CRR) deals with companies’ ethical, economic,environmental, and social impacts. The purpose of this paper is to contribute to the debate on whetherCRR is associated with the information set that shareholders use to value a company’s equity andtherefore, the value-relevance thereof for investment decision making.

Design/methodology/approach – The paper uses a modified Ohlson model developed by Hassel,Nilsson and Nyquist to examine the role of CRR in providing information to shareholders that mayaffect their valuation of a company. The paper uses two data sets, namely a KPMG dataset on the CRRof the top 100 South African companies and the McGregor BFA database for financial data.

Findings – It was found that the share prices of companies with higher levels of CRR are likely to behigher.

Originality/value – Prior research in which different valuation methods and different assessmentperiods were used was conducted in different developed countries. Some studies show value relevance,while others do not. South Africa is a developing country and by bringing a developing country to theliterature the authors’ aim is to contribute to the current debate on the value relevance of CRR.

KeywordsCorporate social reporting, Corporate social responsibility reporting, Sustainability reporting,Value relevance, Republic of South Africa, Responsibilities

Paper type Research paper

1. IntroductionCorporate responsibility reporting (CRR) is rapidly increasing in many countriesaround the world, including South Africa (Antonites and de Villiers, 2003), with83 percent of the world’s 250 largest companies providing CRR in 2008 (KPMG, 2008,p. 14), compared to 64 percent in 2005 (KPMG, 2005, p. 9). CRR consist mainly ofvoluntary disclosure, therefore a clear business case for reporting is evident (Gray,2006, p. 806; KPMG, 2008), as companies would not embrace the idea of CRR unlessthey benefit from it. CRR provides mostly non-financial information to stakeholdersand may also play a role in shareholders’ decisions to buy, sell, or hold equityinstruments in a company (Dhaliwal et al., 2011; Hassel et al., 2005; Patten, 1990).

The current issue and full text archive of this journal is available at

www.emeraldinsight.com/2049-372X.htm

The authors gratefully acknowledge KPMG for providing access to their social disclosure data.The authors appreciate the valuable comments from participants at the 2011 Southern AfricanAccounting Association Conference.

Corporateresponsibility

reporting

21

Meditari Accountancy ResearchVol. 20 No. 1, 2012

pp. 21-38q Emerald Group Publishing Limited

2049-372XDOI 10.1108/10222521211234200

Therefore, considering financial information and CRR together may explain marketvaluations better than an exclusive focus on financial information.

In this study, we are interested in whether CRR has value relevance for shareholders,i.e. does CRR provide additional information to shareholders, that is priced into themarket value of shares (Wyatt, 2008). Prior research in the form of surveys, interviews,and experiments (de Villiers and van Staden, 2010a; Solomon and Solomon, 2006; Chanand Milne, 1999; Holm and Rikhardsson, 2008) shows that individual shareholders callfor environmental information (which is included in CRR) to be disclosed, thatinstitutional investors privately gather environmental information when it is notprovided and that, when provided, shareholders and analysts take environmentalinformation into account in investment decisions. Event studies about the short-termeffects that news/events about environmental and social performance have on shareprices (Blacconiere and Patten, 1994; Dasgupta et al., 2006; Hamilton, 1995; Patten, 1990)provide evidence that companies are penalized for bad performance in terms of negativeabnormal returns and declines in market valuations. The findings of these event studiessuggest that information regarding a company’s environmental and social performanceis value relevant for investment decision-making as it is correlated with the share priceof companies. Further evidence is provided by Dhaliwal et al. (2011), who show positiveeffects of CRR on cost of capital under certain conditions.

Market-based research that more generally examines the effect of environmental,social and/or other areas of CRR on share prices or share returns, however provideinconsistent results. Prior research in which different valuation methods and differentassessment periods were used was conducted in different developed countries, includingSweden (Hassel et al., 2005), Spain (Moneva and Cuellar, 2009), Finland (Schadewitz andNiskala, 2010), the UK (Murray et al., 2006), Australia ( Jones et al., 2007), and severalother European countries (Moneva and Ortas, 2008). Some studies show value relevance(Hassel et al., 2005; Schadewitz and Niskala, 2010), while others do not (Moneva andOrtas, 2008; Murray et al., 2006). Some evidence suggests that CRR is positively relatedto the market value of companies (Schadewitz and Niskala, 2010), as well that CRR(regarding environmental performance ratings) is negatively related to market value(Hassel et al., 2005). The debate on the relationship between share price/market value ofequity and CRR is ongoing and one of the reasons for the mixed prior results could bethat any effect is context specific. We are interested in this relationship in theSouth African context. South Africa is a developing country and by bringing adeveloping country to the literature our aim is to contribute to the current debate.

We use agency theory-derived arguments around the effect of informationasymmetry on shareholders’ risk assessment (Cormier et al., 2005; Healy and Palepu,2001) to hypothesize that CRR influences share prices positively by reducinginformation asymmetry. In line with prior research, we focus on large companies(Hassel et al., 2005; Jones et al., 2007; Moneva and Ortas, 2008; Moneva and Cuellar, 2009;Murray et al., 2006; Schadewitz and Niskala, 2010). We start with the top100 South African companies as identified in an international KPMG (2008) survey onCRR, but eliminate some for lack of financial data to arrive at a full sample of69 companies. Prior research on the value relevance of CRR (or areas thereof, such asenvironmental and social reporting) used one measure of CRR. We use two measures ofCRR (based on the KPMG database for CRR) to examine the role of CRR in providinginformation to shareholders that may affect their valuation of a company.

MEDAR20,1

22

We use a modified Ohlson (1995) model developed by Hassel et al. (2005) to assess thevalue relevance of CRR.

This study contributes to the understanding of the value relevance of CRR. Based onthe fact that CRR is predominantly voluntary, the findings of this study may also be ofinterest to regulators, and the Johannesburg Securities Exchange (JSE), for consideringwhether CRR should be mandated; as well as to shareholders in their investmentdecisions; and managers in their disclosure decisions. Based on the argument thatcapital markets have an important role to play in the global search for sustainability(Murray et al., 2006), the findings of this study should also be of interest to non-financialstakeholders (such as environmental activist groups) as it gives an indication of thepriority given by shareholders traditionally focused on wealth maximization tosustainability issues and CRR.

The remainder of the paper is structured as follows. Section 2 provides an overview ofprior literature that explored whether financial markets are interested in CRR. In thissection, the theoretical framework for the study is discussed and the hypothesis is stated.The data, sample and research method are discussed in Section 3. Finally, the results andthe discussion thereof are presented in Section 4 and the conclusion in Section 5.

2. Prior literature and development of hypothesis2.1 Research to explore if financial markets are interested in CRRde Villiers and van Staden (2010a) provide evidence that environmental information isdesired by individual shareholders. According to the survey based study conducted inAustralia, the UK and the USA, individual shareholders require environmentalinformation from companies first because they believe that managers should beaccountable for a company’s environmental impact, and second because the information isneeded for investment decision-making (de Villiers and van Staden, 2010a). CRR researchin South Africa provides different perspectives informed by surveys (de Villiers, 1998,2003; de Villiers and Vorster, 1995), interviews/case studies (de Villiers, 1999), contentanalyses/archival studies (Antonites and de Villiers, 2003; de Villiers and Barnard, 2000).A survey shows that individual shareholders in South Africa want environmentalinformation disclosed, as they believe that companies should be accountable for theirenvironmental stewardship (de Villiers and van Staden, 2010b). Research by Solomon andSolomon (2006) also suggests that institutional investors/shareholders regard CRR asvalue relevant for decision-making to the extent that they collect private social informationto assist them in decision-making. From the above it is evident that shareholders in generalrequire information about a company’s corporate responsibility to be disclosed and thatsuch information is regarded as value relevant. Based on experiments conducted by Chanand Milne (1999) and by Holm and Rikhardsson (2008), individual shareholders respond todisclosed environmental information by taking such information into account in theirinvestment decision-making.

Value-relevance studies allow for the decision usefulness of CRR to be evaluated in amarket-based setting. Value-relevance studies examine the relationship betweenfinancial information (Beattie, 2005), and based on the Ohlson (1995) valuation modelalso non-financial information, and share prices or share returns. CRR is a form ofnon-financial information. If CRR is correlated with the share price/market valueof equity of companies, theoretical arguments leads to the inference that theinformation disclosed is relevant for shareholders to value the company


reporting

23

(Barth, 2006; Barth et al., 2001; Hassel et al., 2005). According to Wyatt (2008) researcherscan infer from value-relevance tests whether the information item of interest (CRR in thecontext of this study) is associated with the information set that investors use to value thecompany’s equity. However, we cannot infer that investors actually use CRR to value acompany, or that the level of CRR provided causes the level of market value(Wyatt, 2008, p. 222).

Much prior literature used the event-study approach to analyse the short-term effectsof news/events regarding environmental and social performance on the market value ofcompanies (Blacconiere and Patten, 1994; Dasgupta et al., 2006; Hamilton, 1995;Patten, 1990). The above studies generally conclude that investors/shareholderspenalize companies for bad performance in terms of negative abnormal returns anddeclines in market valuation. The results of a study by Freedman and Patten (2004)furthermore suggest that the negative impact on the market of poor environmentalperformance could be mitigated with more extensive reporting.

Some studies examine the general effect of environmental, social, and/or other areasof corporate responsibility performance or disclosure to test the association betweenperformance or disclosure, and share prices/market value of equity. The following threestudies attempted to test the association between disclosure and changes in shareprice/market value of equity (returns). Murray et al. (2006) tested the relationshipbetween social and environmental disclosure and the financial market performance oftop UK companies in a longitudinal and cross-sectional study. They used share-pricereturns and distinguished between mandatory and voluntary disclosure. No directrelationship between share returns and disclosure was found. Jones et al. (2007) testedthe relation between abnormal share-price returns and sustainability disclosure by topAustralian companies. According to their results CRR is negatively but weaklyassociated with abnormal share returns. Moneva and Ortas (2008) hypothesized thatsustainability reporting (or CRR) using internationally accepted rules such as the GlobalReporting Initiative (GRI) guidelines, has a positive effect on the market value ofcompanies. They included 142 European companies representing several countries andindustries in their study and tested the association between disclosure and share-pricereturns. They found no significant difference between the share-price returns forcompanies using the GRI guidelines and those not using the GRI guidelines for CRR.

Certain studies attempted to test the association between disclosure and the level ofshare price/market value of equity. Hassel et al. (2005) used the Ohlson (1995) valuationmodel to test the association between environmental performance ratings disclosed forfinancial market purposes on the Stockholm stock exchange, and the market value ofequity. A modified Ohlson (1995) model was developed. According to their findingsenvironmental information regarding performance ratings is value relevant as it isassociated with a decrease in market value. They found no significant differences betweenthe service and manufacturing industries. Hassel et al. (2005) contributed their findings toa cost-concerned perspective from shareholders. A cost-concerned perspective will resultin a decrease in market value as shareholders argue that environmental investmentsrepresents increased costs, resulting in a decrease in earnings. A value creationperspective will result in an increase in market value as shareholders “regardsenvironmental efforts as a way to increase competitive advantage and improve financialreturn to investors” (Hassel et al., 2005, p. 41). Moneva and Cuellar (2009) used anempirical version of the Ohlson (1995) model to test the value relevance of financial and

MEDAR20,1

24

non-financial environmental reporting of companies listed on the Madrid stock exchange.They controlled for size and additionally tested the association between financial andnon-financial environmental reporting provided by companies in environmentallysensitive industries, and the market value of equity. Their results suggest a significantmarket valuation for financial environmental information but not for non-financialenvironmental information. Their findings also suggest that shareholders of companiesin environmentally sensitive industries value the disclosure of certain non-financialenvironmental information. Shadewitz and Niskala (2010) also used the Ohlson (1995)model to test whether CRR based on the GRI guidelines have an effect on the market valueof companies in Finland. They found CRR based on the GRI guidelines to be a significantexplanatory factor for market value of equity.

One South African study by Buys et al. (2009) is related to our study. Buys et al. (2009)conducted an exploratory study to test whether companies that adopted the GRIguidelines in 2001 performed financially better than other companies that did not adoptthe GRI guidelines. Their study focused on companies listed on the JSE top 40 index. Thetest group consisted of ten companies. The companies’ financial performance wascalculated on an annual basis over a period of nine years from 1998 to 2006. From anaccounting perspective, they used earnings per share, headline earnings per share(where capital items are excluded from earnings), return on assets and return on equityas measures of financial performance. From an economic perspective they calculatedand evaluated the market value added, as well as the economic value added as measuresof financial performance. Buys et al. (2009) compared the results of the ten selectedcompanies with the results of a control group. The paper is unclear about the selection ofthe control group. They also did not statistically test whether companies that adoptedthe GRI guidelines may have had a predisposition to do so because of better financialperformance in years prior to adoption. Buys et al. (2009) concluded that thosecompanies that adopted the GRI guidelines had better financial performance than thegroup that did not adopt the GRI guidelines. Given the limitations of the small samplesize, the lack of statistical tests and comparisons not based on prior literature, theirfindings should be considered with caution.

2.2 Theoretical framework and hypothesisThe overall objective of this study is to evaluate the incremental value relevance of CRRto shareholders and whether the combined effect of financial information and CRRexplains market attributes better than only financial information. We use agency theoryand specifically the concept of information asymmetry to develop a testable hypothesis.

Information asymmetry exists when there is separation of duty between principals(owners/shareholders) and agents (managers) (Deegan, 2007). Owners/shareholders needinformationregardingtheenvironmental riskofa company’soperations, and howitaffectsfuture cash flows and liabilities (Al-Tuwaijri et al., 2004). Owners/shareholders also needinformation regarding management policies to address these risks (Clarkson et al., 2008).Information about these risks and liabilities influence shareholders’ risk assessments, andthereby also their share valuation (Cormier et al., 2005; Dhaliwal et al., 2011; Healy andPalepu, 2001). Owners/shareholders who do not possess the relevant information providedby managers may assume the worst-case scenario when valuing a share, and an adverseselection effect arises. Thus, owners/shareholders will lower the price they are willingto pay for shares in the company and/or require a higher rate of return on shares held.


reporting

25

According to Healy and Palepu (2001), information asymmetry can be reduced by thedisclosure of relevant information (CRR in the context of this study) to informowners/shareholders of managers’ actions. Reduced information asymmetry would resultin the company being more transparent to owners/shareholders, which would increase thecredibility of the company and potentially reduce owners’/shareholders’ risk assessment(Cormier et al., 2005, p. 4; Healy and Palepu, 2001). Managers can be replaced if acompany’s shares do not perform well. In addition, managers are often incentivized withshare-based payments. Managers can maximize these incentives by pursuing initiativesthat increase the share price. The reduction of information asymmetry is one suchinitiative. Managers, therefore, have an incentive to disclose information voluntarily in anattempt to reduce information asymmetry (Healy and Palepu, 2001). The hypothesis forthis study is, therefore, stated as follows:

H1. Higher levels of CRR are likely to be associated with higher shareprices/market values of equity.

Shareholders and other users of CRR tend to associate particular industries withspecific areas of corporate performance (for example the mining industry is generallyviewed as affecting the physical environment) (Ness and Mirza, 1991, p. 212). As asecondary objective, following Hassel et al. (2005) and Moneva and Cuellar (2009),we test whether higher levels of CRR are likely to be assessed differently for companiesin environmentally sensitive industries than for companies in other industries.

3. Data and research method3.1 DataTwo data sets are used. The first set contains data about the CRR practices of the largest100 South African companies by revenue as compiled by KPMG for the 2008 InternationalSurvey of CRR (KPMG, 2008). KMPG used corporate responsibility information availablein the public domain between 2007 and 2008 to examine trends in public disclosure. We useKPMG data for the measures of CRR as it is the only comprehensive CRR databaseavailable from an independent outside source. The KPMG study includes data compiledfrom annual reports, standalone corporate responsibility reports and websites (KPMG,2008). Two measures for the level of CRR are used. The first measure is a compositemeasure that represents a measure of a company’s commitment towards sustainablestrategies and CRR. The composite measure covers the following areas of the KPMGsurvey: overall environmental strategy, stakeholder engagement, corporate managementsystems, reporting, governance, climate change, supply chain, responsible investment,assurance, GRI guidelines used (or not used) by the company and the GRI-level applied bythe company[1]. The composite measure is calculated by adding one for each of thedisclosures made among a list of 87 possibilities, i.e. a comprehensive disclosure measure.The second measure of CRR is a dummy variable indicating whether a company uses theGRI guidelines for CRR or not. The GRI guidelines are globally the most widely usedframework for CRR. According to KPMG (2008) more than 75 percent of the world’s250 largest companies and nearly 70 percent of the top 100 companies from 22 countriesincluded in the survey use the GRI guidelines for reporting. South African companies alsotend to use the GRI guidelines for CRR (KPMG, 2008, p. 94).

The second dataset, the McGregor BFA database, provides the financial data for thesample companies. The 100 South African companies in the KPMG survey includes

MEDAR20,1

26

listed (on the JSE or dual listed on the JSE and another stock exchange) as well asnon-listed companies. The Ohlson (1995) valuation model, which specifies marketvalue of equity as dependent variable in the regression, is used in this study. Therefore,unlisted companies (four state owned and one privately owned) are eliminated from thesample. A total of twelve companies reporting in a unit of account other than ZAR arealso eliminated, as their market value of equity (in ZAR) is not compatible with otherfinancial information from the companies. Three additional companies are eliminatedfor lack of data. The Ohlson (1995) model is not designed for loss firms and, followingChapple et al. (2009), a further eleven loss companies are eliminated from the sample.This leaves a full sample of 69 companies. To ensure that our results are not driven byoutliers and in line with the value relevance study by Hassel et al. (2005), we also excludethe two outlier companies, with absolute values of standardized residuals greater than 3,from the full sample of 69 companies, yielding a final sample of 67 companies.

3.2 MethodValue-relevance studies that test the association between environmental, social and/orother areas of corporate responsibility performance or disclosure and share price/marketvalue of equity, all focussed on larger companies (refer to Section 2.1 of this paper).Different methods, different assessment periods, as well as different measures fordisclosure were used. Following prior research (Hassel et al., 2005; Moneva and Cuellar,2009; Schadewitz and Niskala, 2010), we use the Ohlson (1995) valuation model as itenables us to address the specific research objective of this study, namely to evaluate theincremental value relevance of CRR to shareholders and to test whether the combined effectof financial information and CRR explains market attributes better than only financialinformation. We use two measures of disclosure to ensure the robustness of our results.

According to Barth et al. (2001), equity markets reflect the consensus beliefs ofinvestors – even if the market is not totally efficient in processing the valuationimplications of all publicly available information. Value relevance could, therefore, bemeasured in terms of equity market values or changes in them (Barth, 2006).Value-relevance models require a measure of firm value and follow either a level (price)or change (return) specification (Easton, 1999; Barth, 2006). In this study a level (price)specification is used. Due to the fact that models following a level (price) specificationpotentially suffer scaling problems (Easton, 1999; Kothari and Zimmerman, 1995), wescale variables with opening book value.

The Ohlson (1995) model is an accounting-based valuation model in which the marketvalue of equity is considered to be a function of book value, accounting earnings andother non-accounting value-relevant information[2]. Ohlson (1995) derives the followingvaluation model:

MVt ¼ a0BVt þ a1AEt þ a2vt ð1Þ

Where MVt is the market value of equity at time t, BVt equals book value of equity attime t, AEt is abnormal earnings for period t (calculated as the difference between netincome for period t and opening book value of equity multiplied by the required rate ofreturn), and vt is other non-accounting value-relevant information.

Following Hassel et al. (2005), some of this non-accounting valuerelevant-information include information on corporate responsibility provided by acompany. According to our research model, and following Hassel et al. (2005), the value


reporting

27

relevance of financial statement information (focusing on financial performance only)can be increased when combined with CRR.

The calculation of abnormal earnings in the Ohlson (1995) valuation model(equation (1)) is problematic as the required rate of return is unobtainable. Analystforecasts could not be used to calculate a required rate of return, as the relevantinformation is not available on the McGregor BFA database (McGregor BFA, 2010).Following Hassel et al. (2005), equation (1) is restated in terms of cum-dividend marketvalue, opening book value, earnings and other non-accounting value-relevantinformation. For purposes of this study the model is referred to as the Hassel et al.(2005) modified Ohlson (1995) model:

MVt þ DIt ¼ b0 þ b1BVt21 þ b2NIt þ b3vt þ 1t ð2Þ

Where MVt þ DIt is the cum-dividend adjusted market value, BVt21 equals openingbook value and NIt is current period net income. MVt is the market value of equity andDIt is the dividends recognized as a distribution to shareholders in the current financialyear. The term vt represents other value-relevant information.

In order to address potential scaling problems and following Hassel et al. (2005), allthe variables in equation (2) is deflated with opening book value to control for size.This variation of the Ohlson model is also mentioned by Barth and Clinch (2009, p. 264,equation (16)). Following Hassel et al. (2005) three steps are followed to evaluate thevalue relevance of CRR. The first step is to test the association between accountinginformation and the market value of equity using the following equation derived fromequation (2) (refer to Table I for a detailed description of the variables):

MVi:t þ DI i;tBV i;t21

¼ b01

BVi;t21þ b1

BVi;t21

BVi;t21þ b2

NI i;tBV i;t21

þ 1i;t ð3Þ

The second step is to evaluate the value relevance that CRR holds for shareholdersusing the two measures described above. Both measures of CRR (referred to asCRR_Comp and CRR_GRI) are used as a proxy for non-financial information andreplace the vt term in equation (2). The following equation is used to test the valuerelevance of CRR (refer to Table I for a detailed description of the variables):

MVi:t þ DI i;tBV i;t21

¼ b01

BVi;t21þ b1

BVi;t21

BVi;t21þ b2

NI i:tBV i;t21

þ b3CRRi;t þ 1i;t ð4Þ

We estimate equation (4) separately using the two different CRR measures describedabove. As our measures of CRR are assumed to be independent of company size, it isnot deflated with opening book value (Hassel et al., 2005).

For the third step an extension of equation (4) is used to examine the likelihoodof CRR holding different degrees of value relevance for environmentally sensitivecompanies. Sample companies are categorized as environmentally sensitiveand not-environmentally sensitive based on the classification scheme used by Neu et al.(1998). The following industries are categorized as environmentally sensitive: mining, oiland gas, and chemical and forestry. The interaction between environmentally sensitiveindustries (ES) and CRR is tested. As discussed, equation (5) represents an extension ofequation (4) (refer to Table I for a description of the variables):

MEDAR20,1

28

Variable Measure/calculation

MVi;tþDI i;tBV i;t21

MVi,t þ DIi,t is the cum-dividend adjusted market value ofcompany i, and it is scaled with opening book value BVi,t21 forcompany i. MVi,t is the market value of equity of company i and iscalculated as the number of shares in issue at the last day of themonth three months after the end of the financial year for companyi multiplied by the closing share price of the company at the lastday of the month three months after the end of the financial year.MVi,t three months after the end of the financial year is used toallow time for the publication and analysis of financial statements.DIi,t is the dividends recognised as a distribution to shareholdersfor the 2008 financial year for company i. BVi,t21 is the openingbook value of company i and is calculated as the difference betweentotal assets and total liabilities

1BVi;t21

1/BVi,t21 represents the inverse of opening book value. BVi,t21 isthe opening book value of company i and is calculated as thedifference between total assets and total liabilities

BVi;t21

BVi;t21

Opening book value scaled with opening book value. BVi,t21 is theopening book value of company i and is calculated as the differencebetween total assets and total liabilities. The variable is notincluded in Tables II-IV as BVi,t21/BVi,t21 is equal to one for allcompanies

NIi;tBV i;t21

NIi,t represents current period net income after interest and tax forcompany i, and it is scaled with opening book value BVi,t21.BVi,t21 is the opening book value of company i, and is calculated asthe difference between total assets and total liabilities

CRRi,t (Measure 1: CRR_Comp) CRR_Comp is a measure for the level of CRR.This measure is not deflated, as it is independent of company size.The composite measure (CRR_Comp) takes the following areas ofthe KPMG survey into account: overall environmental strategy,stakeholder engagement, corporate management systems,reporting, governance, climate change, supply chain, responsibleinvestment, assurance, GRI guidelines used (or not used) by thecompany, and the GRI-level applied by the company

CRRi,t (Measure 2: CRR_GRI) CRR_GRI is also a measure of CRR.This measure is not deflated, as it is independent of company size.CRR_GRI indicates whether a company refers to the use of theCRR_GRI guidelines or not. If it does, CRR_GRI is equal to 1. If not,CRR_GRI is equal to 0

ESi,t Used in equation (5). Represents environmentally sensitiveindustries. Sample companies are categorized into environmentallysensitive and not-environmentally sensitive groups based on theclassification scheme used by Neu et al. (1998). The followingindustries are categorized as environmentally sensitive: mining, oiland gas, and chemical and forestry. Dummy variable ES is equal to1 for environmentally sensitive companies and 0 otherwise

ESi,t CRRi,t Used in equation (5). Represents the interaction betweenenvironmentally sensitive industries ES and CRR. Calculated asvariable ES multiplied by the measure of CRR (CRR_Comp andCRR_GRI, respectively)

Table I.Summary of variables

used in equations (3)-(5)


reporting

29

MVi;t þ DIi;tBVi;t21

¼ b01

BVi;t21þ b1

BVi;t21

BVi;t21þ b2

NIi:tBV i;t21

þ b3CRRi;t þ b4ESi;t

þ b5 ESi;tCRRi;t

� �þ 1i;t

ð5Þ

Variable ES is equal to 1 for environmentally sensitive companies and 0 otherwise.The following robustness tests are performed: In case financial information for the

2008 financial year is anticipated by shareholders before the financial year-end date,market value of equity (MVi,t) is calculated using closing share prices and number ofshares in issue at the close of the last date of the financial year. As an alternative forscaling equations (3)-(5) with opening book value, a natural logarithm format isapplied; and equations (3)-(5) are applied to the full sample before deletion of the twooutliers and the results reported.

4. ResultsFollowing Hassel et al. (2005), this study first tests whether CRR provides additionalvalue-relevant information to market participants. Based on the Ohlson (1995)valuation model, a positive and significant association between financial information,non-financial information (CRR in this study), and share prices/market value of equityis expected. The adjusted R 2 is expected to increase when CRR is added to theregression (equation (4)). CRR is expected to be positively and significantly correlatedwith the share price/market value of equity of companies (H1). Second, this study testswhether higher levels of CRR provided by companies in environmentally sensitiveindustries are likely to be assessed differently by market participants than higherlevels of CRR provided by companies in other industries. The variables of interest arethe two measures of CRR (CRR_Comp and CRR_GRI), environmentally sensitiveindustries (ES) and the interaction between ES and the two measures of CRR. Thecoefficient for the interaction between ES and CRR (b5) is expected to be positive andsignificant. The coefficient for ES (b4) is not predicted.

Table II provides the descriptive statistics for the Hassel et al. (2005) adjustedOhlson model scaled with opening book value before deletion of the two outliers. Accordingto Table II, the cum-dividend market value of the sample companies is on average7.0984 times higher than the opening book value. The median deflated cum-dividendmarket value is 3.0740 times higher than opening book value. The maximum cum-dividendmarket value is 164.95 times higher than opening book value and the minimumcum-dividend market value is 0.41 of opening book value. This variable is positively


NIi;tBV i;t21

CRR_Compi,t CRR_GRIi,t

Number of observations (n) 69 69 69 69Mean 7.0984 0.5977 18.36 0.42Median 3.0740 0.3365 14.00 0.00SD 19.8347 1.1692 13.972 0.497Minimum 0.41 0.00286 0 0Maximum 164.95 9.15 52 1

Notes: CRR_Comp and CRR_GRI are the two measures of CRR used in this study; CRR_GRI is adummy variable; refer to Table I for a description of the variables used

Table II.Descriptive statistics onthe full sample: frequencydistribution

MEDAR20,1

30

skewed because of outliers at the higher end and the concentration of the sample at thelower end of the distribution. The net income after interest and tax scaled with openingbook value is also positively skewed with a mean of 0.5977 and a median of 0.3365.The mean return on assets for the sample companies is therefore 59.77 percent for theyear. The minimum profitability ratio is 0.00286 – note that all loss firms are excluded fromthe original sample. The maximum profitability ratio is 9.15 (or 915 percent).The mean composite measure is 18.36 compared to the median of 14.00. The minimumscore for a sample company is 0 and the maximum is 52 out of a possible 87. About 29 of thesample companies use the GRI guidelines for CRR (42 percent of 69).

The results of the least square regression (equations (3)-(5)) on the final sample(excluding the two outliers) are presented in Table III. The inverse of opening bookvalue[3] is positive and significant for equations (3)-(5). The negative relation betweenthe cum-dividend market value of equity and opening book value can be attributed to thechoice of scalar. See Table IV where the natural logarithm of opening book value is

Equation(3)

Equation(4)

(with CRR_Comp)

Equation(4)

(with CRR_GRI)

Equation(5)

(with CRR_Comp)

Equation(5)

(with CRR_GRI)


Dependent Dependent Dependent Dependent DependentIntercept 22.638

(24.745) * * *24.354

(25.228) * * *23.612

(25.035) * * *23.789

(24.225) * * *23.215

(2 .4117) * * *1

BVi;t217.542 £ 109

(9.333) * * *7.872 £ 109

(10.072) * * *8.244 £ 109

(9.612) * * *7.580 £ 109

(9.507) * * *8.121 £ 109

(9.294) * * *NIi;t

BV i;t218.932

(10.131) * * *8.597

(10.099) * * *8.288

(9.069) * * *8.932

(10.292) * * *8.397

(9.031) * * *

CRR_Compi.t 0.092(2.675) * * *

0.076(1.903) * *

CRR_GRIi,t 2.195(2.074) * *

1.819(1.510) *

ESi,t 23.720(21.681) *

22.307(21.306)

ESi,tCRR_Compi.t 0.101(1.226)

ESi,tCRR_GRIi,t 2.164(0.924)

Adj R 2 0.960 0.963 0.962 0.964 0.961F-value 785.047

( p , 0.001)576.103

( p , 0.001)551.793

( p , 0.001)351.667

( p , 0.001)329.899

( p , 0.001)Number ofobservations 67 67 67 67 67

Notes: Significant at: *t . 1.645 – 10 percent level (two-tailed), * *t . 1.960 – 5 percent level(two-tailed), * * *t . 2.575 – 1 percent level (two-tailed); *t . 1.282 – 10 percent level (one-tailed),* *t . 1.645 – 5 percent level (one-tailed), * * *t . 2.327 – 1 percent level (one-tailed); the model is alsotested using closing share prices and number of shares in issue at date of financial year end tocalculate MVi,t, and does not impact the results; refer to Table I for a description of the variables used;the t-statistic is reported in parenthesis and is two-tailed, except for the following variables of interestCRR_Compi,t; CRR_GRIi,t; ESi,tCRR_Compi,t; and ESi,tCRR_GRIi,t, which are one-tailed

Table III.Hassel et al. (2005)

modified Ohlson (1995)model scaled with

opening book value


reporting

31

Equation(3a)a

Equation(4a)a

(with CRR_Comp)

Equation(4a)a

(with CRR_GRI)

Equation(5a)a

(with CRR_Comp)

Equation(5a)a

(with CRR_GRI)

Log (MVi,t þ DIi,t) Dependent Dependent Dependent Dependent DependentIntercept 2.097

(1.248)4.406

(2.487) * *4.276

(2.381) * *4.704

(2.557) * *4.624

(2.551) * *

LogBVi,t21 0.401(3.847) * * *

0.315(3.062) * * *

0.335(3.263) * * *

0.306(2.882) * * *

0.320(3.106) * * *

LogNIi,t 0.443(4.845) * * *

0.403(4.610) * * *

0.397(4.462) * * *

0.399(4.444) * * *

0.397(4.418) * * *

CRR_Compi.t 0.022(2.937) * * *

0.020(2.395) * * *

CRR_GRIi,t 0.579(2.692) * * *

0.422(1.764) * *

ESi,t 20.043(20.099)

20.198(20.581)

ESi,t CRR_Compi,t 0.008(0.474)

ESi,tCRR_GRIi,t 0.614(1.365) *

Adj R 2 0.651 0.688 0.682 0.681 0.683F-value 62.504

( p , 0.001)49.510

( p , 0.001)48.151

( p , 0.001)29.145

( p , 0.001)29.490

( p , 0.001)Number ofobservations

67 67 67 67 67

Notes: Significant at: *t . 1.645 – 10 percent level (two-tailed), * *t . 1.960 – 5 percent level (two-tailed), * * *t . 2.575 – 1 percent level (two-tailed); *t . 1.282 – 10 percent level (one-tailed), * *

t . 1.645 – 5 percent level (one-tailed), * * *t . 2.327 – 1 percent level (one-tailed); athis model is usedas a robustness test for the Hassel et al. (2005) modified Ohlson model scaled with opening book value(Table III); we work on the same base number of companies as in the Hassel et al. (2005)modified Ohlson model scaled with opening book value, and hence applies the natural logarithmformat on the 67 companies; instead of scaling with opening book value (BVi,t21), a naturallogarithm format of variables is used; The adjusted equations are not separately presented in the paperbut are referred to as (3a)-(5a) in the table; summary of variables used: Log (MVi,t þ DIi,t) – representsthe natural logarithm of the cum-dividend adjusted market value of company i, MVi,t þ DIi,t is thecum-dividend adjusted market value of company i, MVi,t is the market value of equity of company iand is calculated as the number of shares in issue at the last day of the month three months after theend of the financial year for company i multiplied by the closing share price of the company at thelast day of the month three months after the end of the financial year, MVi,t three months after the endof the financial year is used to allow time for the publication and analysis of financial statements,DIi,t is the dividends recognized as a distribution to shareholders for the 2008 financial year forcompany i; LogBVi,t21 – the natural logarithm of opening book value of company i, BVi,t21 iscalculated as the difference between total assets and total liabilities; LogNIi,t – represents the naturallogarithm of net income after interest and tax of company i; CRR_Compi.t; CRR_GRIi,t; ESi,t; ESi,tCRR_Compi,t; and ESi,tCRR_GRIi,t are discussed in Table I; the model is also tested using closingshare prices and number of shares in issue at date of the financial year end to calculate MVi,t, with noimpact on the results; the t-statistic is reported in parenthesis and is two-tailed, except for the followingvariables of interest CRR_Compi,t; CRR_GRIi,t; ESi,tCRR_Compi,t; and ESi,tCRR_GRIi,t, which are one-tailed

Table IV.Hassel et al. (2005)modified Ohlson (1995)model using a naturallogarithm format

MEDAR20,1

32

positive and significant. The coefficients for net income scaled with opening book valueare positive and significant. The adjusted R 2 for equation (3), based on financialinformation only, is 0.960. The adjusted R 2 increases marginally to 0.963 when thecomposite measure of CRR is added to the regression in equation (4). It also increasesfrom 0.960 to 0.962 when the GRI measure of CRR is used in the regression.Both measures of CRR are significant at the 1 percent and 5 percent levels, respectively.When the variable representing environmentally sensitive industries (ES) and thevariable for the interaction between these industries and CRR are added to the regressionin equation (5), the adjusted R 2 increases to 0.964 for the model using the compositemeasure of CRR, but remains relatively constant at 0.961 (compared to the adjustedR 2 of0.960 for financial information only in equation (3)), for the model using the GRI measureof CRR. In both models the industry variable is negative but it is only significant for themodel using the composite measure of CRR (t ¼ 21.681). The interaction betweenenvironmentally sensitive industries and the two measures of CRR are positive,as expected, but not significant (t ¼ 1.226 and t ¼ 0.924). For robustness purposes themodel is also tested using closing share prices and number of shares in issue at date offinancial year end to calculate market value of equity (MVi,t) and does not impact theresults. The adjusted R 2 of the model tested on the full sample before deletion of the twooutliers is 0.943 for financial information. When CRR is added to the regression theadjusted R 2 increases to 0.947 for the composite measure of CRR and increases to0.944 for the GRI measure of CRR (the results of the tests on the full sample are notpresented in a separate table). The Hassel et al. (2005) modified Ohlson (1995) modelscaled with opening book value thus provides evidence of the value relevance of CRR.CRR is positively and significantly correlated with the market value of equity ofcompanies (Table III) – higher levels of CRR are thus likely to be associated with highershare prices/market values of equity (H1). CRR provided by environmentally sensitivecompanies are not likely to be assessed differently by market participants.

Using a natural logarithm format (Table IV), the adjusted R 2 for equation (3), basedon financial information only is 0.651 and both opening book value as well as netincome is positive and significant as expected. The adjusted R 2 increases to 0.688when the composite measure of CRR is added to the regression and increases to 0.682when the GRI measure of CRR is added to the regression. Both measures of CRR arepositively (coefficients of 0.022 and 0.579) and significantly correlated with thecum-dividend market value of equity at the 1 percent level. The adjusted R 2 decreaseswhen environmentally sensitive industries (ES) and the interaction variable are addedto the regression model for the composite measure of CRR (from 0.688 for equation (4)to 0.681 for equation (5)) but increases marginally for the model using the GRI measureof CRR (from 0.682 for equation (4) to 0.683 for equation (5)). The coefficients forenvironmentally sensitive industries are negative but not significant for both measuresof CRR. The coefficients for the interaction variable between CRR and environmentallysensitive industries (using both measures of CRR) are positive, as predicted, but onlysignificant for the model using the GRI measure of CRR (at the 10 percent level). Forrobustness purposes the model is also tested using closing share prices and number ofshares in issue at date of financial year end to calculate market value of equity (MVi,t)and the results remain unchanged. The adjusted R 2 of the model tested on the fullsample is 0.733 for financial information. When CRR is added to the regression theadjusted R 2 increases to 0.736 for the composite measure of CRR and increases


reporting

33

to 0.734 for the GRI measure of CRR (the results of the tests on the full sample are notpresented in a separate table). The model using a natural logarithm format thusprovides evidence of the value relevance of CRR. Based on the increase in the adjustedR 2 when CRR is added to the regression (Table IV), we can infer that the combinedeffect of financial information and CRR explains market attributes better than onlyfinancial information. CRR is positively and significantly correlated with the marketvalue of equity of companies (H1). The results of the tests on whether higher levels ofCRR are likely to be assessed differently for companies in environmentally sensitiveindustries than for companies in other industries are not robust.

In summary, the results of the Hassel et al. (2005) modified Ohlson (1995) model,scaled with opening book value and using a natural logarithm format, suggest thatCRR provides value-relevant information to market participants and that higher levelsof CRR are likely to be associated with higher share prices/market values of equity.The adjusted R 2 increases when CRR (both measures of CRR) is added to theregression and CRR (both measures of CRR) is positively and significantly correlatedwith the cum-dividend market value of equity (Tables III and IV). We do not test thestatistical significance of the increase in the adjusted R 2 (both measures of CRR) butsimply observe that an increase is evident. H1 is thus supported. The results of theadditional tests on whether CRR provided by companies from environmentallysensitive industries are likely to be assessed differently by market participants areinconclusive. Although positive in both the model scaled with opening book value aswell as the model using a natural logarithm format, the interaction effect ofenvironmentally sensitive industries and CRR on the market value of equity is onlysignificant (not for both measures of CRR) in the model using the natural logarithmformat (Table IV).

5. ConclusionPrior research on the value relevance of CRR was conducted in different countries, useddifferent methods, and provides some inconsistent results. In this paper we examinethe value relevance of the CRR provided by South African companies. We use amodified Ohlson (1995) model developed by Hassel et al. (2005) to assess the valuerelevance of CRR. Following prior research we expect the combined effect of financialaccounting information with CRR to explain market attributes better than an exclusivefocus on financial accounting information. Based on agency theory, we argue that CRRreduces the information asymmetry between owners/shareholders and managers andthus influences shareholders’ risk assessment of a company (Cormier et al., 2005; Healyand Palepu, 2001). Additionally, we test whether higher levels of CRR are likely toassessed differently by shareholders for companies in environmentally sensitiveindustries than for companies in other industries.

The results using the Hassel et al. (2005) modified Ohlson (1995) model suggest thatfinancial information and CRR combined explains market valuations better than onlyfinancial information. The fact that CRR is positively and significantly correlated with themarket value of equity of companies (evidence in support of H1) shows that companieswith higher CRR are likely to have higher share prices compared to companies with lowerlevels of CRR. Value relevance studies are designed to assess whether particularaccounting information, and in the context of this study also non-accounting informationsuch as CRR (following Hassel et al., 2005), reflect information that is used by shareholders

MEDAR20,1

34

in valuing a company’s equity, and not to estimate share price/market value of equity(Barth et al., 2001). Our conclusion is therefore not that the level of CRR causes the level ofmarket value, but rather that CRR is associated with the information set that investors useto value a company. Thus, based on prior literature, we can infer that CRR isvalue-relevant for investment decision-making.

The results of the tests on whether higher levels of CRR are likely to beassessed differently for companies in environmentally sensitive industries than forcompanies in other industries are less compelling. Only 16 of the 69 companies in the fullsample are categorized as environmentally sensitive industries (based on theclassification scheme used by Neu et al., 1998). The classification scheme used in thisstudy may be too restrictive. In future research, this classification can be extended toinclude, for example, pharmaceuticals, distillers and vintners, heavy construction, andgambling industries. In order to provide more extensive evidence on the value relevanceof CRR this study could be replicated over a longer period of time to enable longitudinalas well as cross-sectional tests. KPMG indicated in their report (International survey ofCRR 2008) that CRR in South Africa is mainly influenced by the extent of a company’senvironmental impact, its size, and its exposure to international markets and investors.Therefore, we control for size and environmentally sensitive industries in the models.Areas for future research include testing for the value relevance of the relation betweenCRR and the exposure to international markets and investors.

In common with other studies of this nature, our results do not show causality, butrather correlation. However, again in common with all such studies, we rely on theory toprovide the rationale for hinting at causality. In this case, we rely on the well establishedargument that investors can only deal with a lack of information by assuming the worseand therefore being prepared to pay less for a share. With more information, in this caseCRR information, investors are prepared to pay more. A further possible limitation ofour study is that our CRR measure(s) can be refined (or specified differently) and thiscould be an avenue for future research.

Notes

1. Further information regarding the proprietary information used in the composite measurecan be obtained from the authors.

2. The Ohlson (1995) valuation model refers to accounting and non-accounting information.Following Hassel et al. (2005), it is also referred to as financial and non-financial information.

3. The BVi,t21/BVi,t21 term is 1 for each company and therefore this term is included in theintercept. The 1/BVi,t21 term now takes the role of the BVi,t21 term. Note that we do not usethese interpretations in this paper, because we are only interested in the significance of theCRR term for hypothesis testing.

References

Al-Tuwaijri, S.A., Christensen, T.E. and Hughes, K.E. II (2004), “The relations amongenvironmental disclosure, environmental performance, and economic performance:a simultaneous equations approach”, Accounting, Organizations and Society, Vol. 29,pp. 447-71.

Antonites, E. and de Villiers, C.J. (2003), “Trends in South African corporate environmentalreporting: a research note”, Meditari Accountancy Research, Vol. 11 No. 1, pp. 1-10.


reporting

35

Barth, M.E. (2006), “Research, standard setting, and global financial reporting”, Foundations andTrends in Accounting, Vol. 1 No. 2, pp. 71-165.

Barth, M.E. and Clinch, G. (2009), “Scale effects in capital markets-based accounting research”,Journal of Business Finance & Accounting, Vol. 36 Nos 3/4, pp. 253-88.

Barth, M.E., Beaver, W.H. and Landsman, W.R. (2001), “The relevance of the value relevanceliterature for financial accounting standard setting: another view”, Journal of Accountingand Economics, Vol. 31, pp. 77-104.

Beattie, V. (2005), “Moving the financial accounting research front forward: the UK contribution”,British Accounting Review, Vol. 37 No. 1, pp. 85-114.

Blacconiere, W.G. and Patten, D.M. (1994), “Environmental disclosures, regulatory costs, andchanges in firm value”, Journal of Accounting and Economics, Vol. 18, pp. 357-77.

Buys, P., Bosman, P. and van Rooyen, S. (2009), “Do socially conscious companies provide betterfinancial performance? An exploratory study”, Studia Universitatis Babes Bolyai –Oeconomica, Vol. 1, pp. 3-15.

Chan, C.C.C. and Milne, M.J. (1999), “Investor reactions to corporate environmental saints andsinners: an experimental analysis”, Accounting & Business Research, Vol. 29 No. 4,pp. 265-79.

Chapple, L., Clarkson, P. and Gold, D. (2009), “Carbon as a commodity: the costs andconsequences for corporates and capital in the Australian market”, paper presented at the2009 AFAANZ Conference in Adelaide.

Clarkson, P.M., Li, Y., Richardson, G.D. and Vasvari, F.P. (2008), “Revisiting the relation betweenenvironmental performance and environmental disclosure: an empirical analysis”,Accounting, Organizations and Society, Vol. 33 No. 3, pp. 303-27.

Cormier, D., Magnan, M. and van Velthoven, B. (2005), “Environmental disclosure quality inlarge German companies: economic incentives, public pressures or institutionalconditions?”, European Accounting Review, Vol. 14 No. 1, pp. 3-39.

Dasgupta, S., Hong, J.H., Laplante, B. and Mamingi, N. (2006), “Disclosure of environmentalviolations and stock market in the Republic of Korea”, Ecological Economics, Vol. 58,pp. 759-77.

Deegan, C. (2007), Financial Accounting Theory, 2nd ed., McGraw-Hill, Sydney.

de Villiers, C. (1998), “The willingness of South Africans to support more green reporting”, SouthAfrican Journal of Economic and Management Sciences, Vol. 1 No. 1, pp. 145-67.

de Villiers, C. (1999), “The decision by management to disclose environmental information: aresearch note based on interviews”, Meditari Accountancy Research, Vol. 7, pp. 33-48.

de Villiers, C. (2003), “Why do South African companies not report more environmentalinformation when managers are so positive about this kind of reporting?”, MeditariAccountancy Research, Vol. 11 No. 1, pp. 11-23.

de Villiers, C. and Barnard, P. (2000), “Environmental reporting in South Africa from 1994 to1999: a research note”, Meditari Accountancy Research, Vol. 8 No. 1, pp. 15-23.

de Villiers, C. and van Staden, C.J. (2010a), “Shareholders’ corporate environmental disclosureneeds”, South African Journal of Economic and Management Sciences, Vol. 13 No. 4,pp. 437-46.

de Villiers, C. and van Staden, C.J. (2010b), “Shareholders’ requirements for corporateenvironmental disclosures: a cross country comparison”, British Accounting Review,Vol. 42 No. 4, pp. 227-40.

de Villiers, C. and Vorster, Q. (1995), “More corporate environmental reporting in South Africa?”,Meditari Accountancy Research, Vol. 3, pp. 44-66.

MEDAR20,1

36

Dhaliwal, D.S., Li, O.Z., Tsang, A. and Yang, Y.G. (2011), “Voluntary non-financial disclosure andthe cost of equity capital: the initiation of corporate social responsibility reporting”, TheAccounting Review, Vol. 86 No. 1, pp. 59-100.

Easton, P.D. (1999), “Security returns and the value relevance of accounting data”, AccountingHorizons, Vol. 13 No. 4, pp. 399-412.

Freedman, M. and Patten, D.M. (2004), “Evidence on the pernicious effect of financial reportenvironmental disclosure”, Accounting Forum, Vol. 28, pp. 27-41.

Gray, R. (2006), “Social, environmental and sustainability reporting and organisional valuecreation? Whose value? Whose creation?”, Accounting, Auditing & Accountability Journal,Vol. 19 No. 6, pp. 793-819.

Hamilton, J.T. (1995), “Pollution as news: media and stock market reactions to the toxins releaseinventory data”, Journal of Environmental Economics and Management, Vol. 28,pp. 98-113.

Hassel, L., Nilsson, H. and Nyquist, S. (2005), “The value relevance of environmentalperformance”, European Accounting Review, Vol. 14 No. 1, pp. 41-61.

Healy, P.M. and Palepu, K.G. (2001), “Information asymmetry, corporate disclosure, and thecapital markets: a review of the empirical disclosure literature”, Journal of Accounting& Economics, Vol. 31, pp. 405-40.

Holm, C. and Rikhardsson, P. (2008), “Experienced and novice investors: does environmentalinformation influence investment allocation decisions?”, European Accounting Review,Vol. 17 No. 3, pp. 537-57.

Jones, S., Frost, G., Loftus, J. and van der Laan, S. (2007), “An empirical examination of themarket returns and financial performance of entities engaged in sustainability reporting”,Australian Accounting Review, Vol. 17 No. 1, pp. 78-87.

Kothari, S.P. and Zimmerman, J.L. (1995), “Price and return models”, Journal of Accounting& Economics, Vol. 20, pp. 155-92.

KPMG (2005), KPMG International Survey of Corporate Responsibility Reporting,available at: www.kpmg.com.au/Portals/0/KMPG%Survey%202005_3.pdf (accessed20 September 2010).

KPMG (2008), KPMG International Survey of Corporate Responsibility Reporting, available at:www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Pages/Sustainability-corporate-responsibility-reporting-2008.aspx (accessed 15 May 2010).

McGregor BFA (2010), available at: www.mcgregorbfa.com/data (accessed 16 June 2010, 17June 2010, 18 June 2010, 22 June 2010, 12 July 2010, 1 November 2010, 3 November 2010,and 4 November).

Moneva, J.M. and Cuellar, B. (2009), “The value relevance of financial and non-financialenvironmental reporting”, Environmental and Resource Economics, Vol. 44, pp. 441-56.

Moneva, J.M. and Ortas, E. (2008), “Are stock markets influenced by sustainability matter?Evidence from European companies”, International Journal of Sustainable Economy, Vol. 1No. 1, pp. 1-16.

Murray, A., Sinclair, D., Power, D. and Gray, R. (2006), “Do financial markets care about socialand environmental disclosure? Further evidence and exploration from the UK”,Accounting, Auditing & Accountability Journal, Vol. 19 No. 2, pp. 228-55.

Ness, K.E. and Mirza, A.M. (1991), “Corporate social disclosure: a note on a test of agency theory”,British Accounting Review, Vol. 23, pp. 211-17.


reporting

37

Neu, D., Warsame, H. and Pedwell, K. (1998), “Managing public impressions: environmentaldisclosures in annual reports”, Accounting, Organizations and Society, Vol. 23 No. 3,pp. 265-82.

Ohlson, J.A. (1995), “Earnings, book values and dividends in equity valuation”, ContemporaryAccounting Research, Vol. 11 No. 2, pp. 661-87.

Patten, D.M. (1990), “The market reaction to social responsibility disclosures: the case of thesillivan principles signings”, Accounting, Organizations and Society, Vol. 15 No. 6,pp. 575-87.

Schadewitz, H. and Niskala, M. (2010), “Communication via responsibility reporting and its effecton firm value in Finland”, Corporate Social Responsibility and EnvironmentalManagement, Vol. 17, pp. 96-106.

Solomon, J.F. and Solomon, A. (2006), “Private, social, ethical and environmental disclosure”,Accounting, Auditing & Accountability Journal, Vol. 19 No. 4, pp. 564-91.

Wyatt, A. (2008), “What financial and non-financial information on intangibles is value-relevant?A review of the evidence”, Accounting & Business Research, Vol. 38 No. 3, pp. 217-56.

Corresponding authorMarna de Klerk can be contacted at: [email protected]

MEDAR20,1

38

To purchase reprints of this article please e-mail: [email protected] visit our web site for further details: www.emeraldinsight.com/reprints

Documents

The Value Relevance of Corporate