Environmental Economics

The Financial Impact of Environmental Events and Issues on the Forest Products Industry

This paper examines the relationship between environmental performance and financial performance in the forest products industry using three methodologies:

    I. Two event studies of capital market performance,
    II. An analysis of possible relationships between operating/financial performance and environmental performance at the firm level, and
    III. A three company case study.

I. The authors find that the event studies are inconclusive. No significant abnormal returns were found for the forest products industry in the stock market for both events examined. The event study methodology appears problematic because of the effects of lack of surprise, market noise, and misidentification of events.

II. Because a company’s stock price is based upon perceptions of discounted future earnings, the authors performed an analysis to examine the relationship between environmental performance and earnings. Using Toxics Release Inventory (TRI) data as an indicator of environmental performance, a regression analysis was performed for fifteen forest products companies over the years 1989-1994. This analysis indicated a significant negative relationship between short-term (up to three years) operational performance (as represented by net operating cashflow as a percentage of sales and assets) and environmental performance; it also found no significant relationship between short-term financial performance (as represented by net operating cashflow on equity) and environmental performance.

III. Given the finding that in this industry poor environmental performance may result in short-term economic gains, the authors find that it is interesting that many companies would choose to pursue pro-active environmental strategies. This choice is examined through a case study comparison of three companies’ actions in the face of regulatory change. The conclusion drawn is that the profitability of long-term investments may depend upon proactive strategies which lower the company’s level of risk.
This is one a number of reports prepared by the Institute as a part of their Competitiveness Project, as explained in their
summary report. In the Competitivenes Project summary report., it is referred to as the Pulp and Paper case study.
MEB Case Studies
Industries: Title of Report in EERICompanies: Title of Report in EERI
Pulp and Paper*: Competitive Implications of Environmental Regulations: A Study of Six IndustriesAES: Not done for EPA and not in EERI
Paint and Coating*: Competitive Implications of Environmental Regulations: A Study of Six IndustriesAT&T: Not done for EPA and not in EERI
Electronics*: Competitive Implications of Environmental Regulations: A Study of Six IndustriesBMW: A Proactive Approach to Vehicle Recycling, Part of Field Study Series on Environment and Industrial Competitiveness
Printing Inks*: Competitive Implications of Environmental Regulations: A Study of Six IndustriesCarolina Power and Light: Competitiveness of Environmental Regulation: A Case Study on Carolina Power and Light
Refrigerators*: Competitive Implications of Environmental Regulations: A Study of Six IndustriesDow Chemical: Competitiveness of Environmental Regulation: A Case Study on Dow Chemical Company and 1, 1, 1
Batteries*: Competitive Implications of Environmental Regulations: A Study of Six IndustriesGeneral Motors: Not done for EPA and not in EERI
Electric Power: Competitive Implications of Environmental Regulations in the Electric Utility IndustryIKEA: Competitiveness of Environmental Regulation: A Case Study on IKEA
Metal Finishing: Competitive Implications of Environmental Regulations in the Metal Finishing IndustryNorthrop: Not done for EPA and not in EERI
Recovered Paper: Competitive Implications of Environmental Regulations in the Recovered Paper IndustryWeyerhaeuser: Environmental Performance and Strategy at Weyerhaeuser
Polyvinyl Chloride: Competitive Implications of Environmental Regulations in the Polyvinyl Chloride (PVC) Industry
Laundry Detergent: Competitive Implications of Environmental Regulations in the Laundry Detergent Industry
Property and Casualty Insurance: The Financial Impact of Environmental Events and Issues on the Property and Casualty Insurance Industry Companies
  • Keywords
    Subject:
    3. Cost and Economic Impacts Analysis
    8. Other Analyses and Reports
    3. Costs and Economic Impact Analysis - Specific Sectors and Pollutants
    3. Costs and Economic Impact Analysis - Competitiveness Effects
    Environmental Media:
    f. Multimedia
    Authors:
    Day, Robert
    Amati, Alexander
    Neubert, Brian
    EPA Project Officer/ Manager:
    Carlin, Alan
    Geographic Area:
    United States
    Study Purpose:
    Empirical Application, Data Development
    Report Series:
    Competitive Implications of Environmental Regulation
    Inventory Record #: EE-0214J
    List of all reports in the Series:
  • Participating Organizations

    Research Organization:

    Management Institute for Environment and Business,
    A Program of the World Resources Institute
    Address:
    City: Washington State: DC ZIP: 20006
    Phone: Fax:
    E-mail:
    Funding Organization:
    Environmental Protection Agency, Office of Research and DevelopmentAddress:
    City: State: ZIP:
    Phone: Fax:
    E-mail:
  • Report Details
    Type:
    Final
    Date:
    01/01/1997
    Number of Pages:
    27
    Comment:
    Grant/Contract #:
    CR824410-01
  • How to Obtain Report


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    Date Linked: 05/28/2009