1. Introduction - 早稲田大学

Korean Accounting Association Summer Conference
June 18 th , 2010
Market Valuation of Corporate
CO 2 Emissions, Disclosure
and Emissions Trading
Chika SAKA (Kwansei Gakuin University)
阪 智香 (関西学院大学)
chika@kwansei.ac.jp
Tomoki OSHIKA (Waseda University)
大鹿 智基 (早稲田大学)
oshikat@waseda.jp

Saka and Oshika (2010) at KAA
1. Introduction
CO2 emissions and global warming

Saka and Oshika (2010) at KAA
Kyoto Protocol
1. Introduction

Saka and Oshika (2010) at KAA
1. Introduction
CO2 emission in Japan
We have to reduce 9%.
Government plans
Emissions trading
Environmental laws
Environmental taxes
Risk & expenditure
vs. opportunity & benefit

Saka and Oshika (2010) at KAA
1. Introduction
Post-Kyoto (COP15)
“CO2” is one of the world
high-priority issues
This research analyzes on market
valuation of
Corporate CO 2 emissions
Corporate CO 2-related disclosure
Participation in emissions trading
schemes (ETS)
KYOTO Protocol Our Future

Saka and Oshika (2010) at KAA
2. Previous Research and Hypotheses
Previous Researches
Cormier and Magnan (1997) , Cormier and Magnan (1997) ,
Konar and Cohen (2001)
Barth and McNichols (1994) , Garber and Hammitt (1998),
Bae and Sami (2005), Graham et al. (2001)
Impact of CO 2 Emissions
Global Warming Measures Law
CO2 emission data for business is available from FY2006.
JAA Special Committee Final Report (2009)
Higher CO 2 emissions may force the businesses to invest in emission
reductions or to purchase CO 2 emission rights.
Companies failing to fulfill the targets of the Kyoto Protocol may lose
some sales and business dealings.
H1: CO 2 emissions have a negative impact on market value.

Saka and Oshika (2010) at KAA
2. Previous Research and Hypotheses
Impact of Disclosure
Previous Research: Campbell et al. (2003)
Mainstreaming of SRI
Carbon Disclosure Project (CDP) requests companies to disclose
information of risk and opportunity about greenhouse gas emissions
and climate change strategies.
Through the CO 2-related disclosure, investors’ uncertainty about future
cash outflows on risks from CO 2 emissions would be reduced.
Disclosure of the companies’ concrete CO 2 emission reduction plans,
objectives and strategies can heighten the credibility that the companies’
future CO 2-related risks will be reduced and managed.
H2: CO 2-related disclosure by corporations alleviates the
negative impact of CO 2 emissions on market value.

Saka and Oshika (2010) at KAA
2. Previous Research and Hypotheses
Impact of Participation in Emissions Trading Schemes(ETS)
Previous Researches: King and Lenox (2002), Clarkson et al. (2004)
Japan’s Voluntary Emissions Trading Scheme (JVETS)
By setting CO 2 emission reduction targets and implementing
reduction activities via participation in ETS, future CO 2 emissions
reductions and resulting future cash outflow decrease can be
expected.
H3: Participation in ETS alleviates the negative impact of
CO 2 emissions on market value.

Saka and Oshika (2010) at KAA
3. Empirical Models
H 1: MVE t = α + β 1 BVE t + β 2 EARN t + β 3 E t [EARN t+1] + β 4 CO 2 t + ε
[1]
H 2: MVE t = α + β 1 BVE t + β 2 EARN t + β 3 E t [EARN t+1] + β 4 CO 2 t
+ β 5 DISC t + ε [2]
H 3: MVE t = α + β 1 BVE t + β 2 EARN t + β 3 E t [EARN t+1] + β 4 CO 2 t
+ β 5 ETS t + ε [3]
MVE t = Market value of equity;
BVE t = Book value of equity;
EARN t = Earnings before extraordinary items;
E t [EARN t+1] = Forecast of earnings before extraordinary items of next year;
CO 2 t = Volume of CO 2 emissions;
DISC t = Dummy variable taking a value of 1 for those disclose CO 2 -related information,
0 otherwise;
ETS t = Dummy variable taking a value of 1 for emission trading scheme participant,
0 otherwise;
ε = error.

Saka and Oshika (2010) at KAA
4. Sample Selection and Data Collection
Corporate CO 2 emissions data
FY 2006 data (1,085 firms) and FY 2007 data (808 firms) under the
Global Warming Measures Law.
CO2-related disclosure
companies answering to the CDP questionnaire on risks and
opportunities related to climate change and on emissions reduction
plans, targets and strategies from
“Carbon Disclosure Project Report 2006 - Japan 150” (101 firms) and
“Carbon Disclosure Project Report 2007 - Japan 150” (115 firms)
Participating in emissions trading schemes
companies participating in the second phase(61 firms) and
third phase(61 firms) under JVETS

Saka and Oshika (2010) at KAA
4. Sample Selection and Data Collection
Financial data and stock price data: Nikkei NEEDS-Financial Quest
Manufacturing sector, listed companies
Final samples for analysis
CO 2 emissions: 448 firms in FY 2006, 338 firms in FY 2007,
784 firms for a pooled data
CDP respondents: 36 firms in FY 2006, 38 firms in FY 2007,
75 firms for pooled data.
JVETS participant: 18 firms in FY 2006 13 firms in FY 2007,
30 firms for pooled data
Descriptive Statistics See TABLE 1
Correlation Matrix See TABLE 2

Saka and Oshika (2010) at KAA
5. Results of the Analysis
H1: FY 2006 CO 2 emissions, FY 2007 CO 2 emissions, and two-year CO 2
emissions all have a significant negative impact on the market value.
H2: The negative impact is alleviated by CO 2 -related disclosure.
H3: Dummy coefficient on emissions trading scheme(ETS) participation
is positive but insignificant.

Saka and Oshika (2010) at KAA
5. Results of the Analysis
Additional Analysis Related to H3
Separated samples into participants in ETS and non-participants for eq.[1].
The absolute value of the CO 2 emission coefficient is smaller for participants than
for non-participants, with no significance.
For participants in ETS, explanatory power for current earnings decreases, while
explanatory power for forecasted earnings for the next period increases.

Saka and Oshika (2010) at KAA
6. Summary and Conclusion
The results are
(1) Corporate CO 2 emissions have a negative impact on market value.
(2) CO 2-related disclosure alleviates the negative impact .
(3) Dummy coefficient on emissions trading scheme(ETS) participation
is positive but insignificant.
(4) For firms participating in ETS, CO 2 emissions do not have a
significant negative impact on market value.
Corporate CO 2 emission information, CO 2-related disclosure, and
the data of participation in ETS are used in decision-making by
investors.
Limitation of the analysis
Future research

Korean Accounting Association Summer Conference
June 18 th , 2010
Thank you very much.
We appreciate your comments
to the following emails.
Chika SAKA (Kwansei Gakuin University)
阪 智香 (関西学院大学)
chika@kwansei.ac.jp
Tomoki OSHIKA (Waseda University)
大鹿 智基 (早稲田大学)
oshikat@waseda.jp