The importance of corporate environmental reputation to investors

Abstract

Purpose: The purpose of this paper is to explore how corporate environmental reputation (CER) affects the association between current annual stock returns and current and future annual earnings. In particular, it seeks to examine the potential usefulness of CER to investors in predicting future earnings.Design/methodology/approach: The paper uses the returns‐earnings regression model introduced by Collins et al. to examine the importance of CER for investors. It uses a sample of 889 non‐financial firms listed on the London Stock Exchange from 1996 to 2004.Findings: The paper finds that firms with higher levels of CER scores exhibit higher levels of share price anticipation of earnings than firms with lower levels of CER scores.Originality/value: This paper is the first direct evidence that CER contains value‐relevant information. Such information is potentially useful to investors in anticipating future earnings.