The Value Relevance of Environmental Audits: Evidence from Japan

Lee, Ki‐Hoon; Park, Bum‐Jin; Song, Hakjoon; Yook, Keun‐Hyo

Abstract

Environmental audits are implemented internally in order to monitor compliance with environmental laws, regulations and related accounting rules, and to develop recommendations for ways in which to improve environmental accounting processes and performance. In addition, external third-party assurance on environmental information is used to verify whether firms’ disclosures on environmental information are in compliance with environmental accounting rules and regulations. We examine whether firms’ environmental audits positively affect their market values and whether third-party assurance strengthens positive effects, using value relevance theory as a theoretical foundation. Our main tests are based on 266 Japanese manufacturing firms’ published environmental reports for the period 2010–2013. We find that the average market value of firms that implement environmental audits is 9 percent greater than those that do not. Further, we find that environmental audits positively affect firm value, largely through interaction with third-party assurance.

Citation

Lee, K., Park, B., Song, H., & Yook, K. (2017). The Value Relevance of Environmental Audits: Evidence from Japan. Business Strategy and the Environment, 26(5), 609-625. https://doi.org/10.1002/bse.1940

• Journal Article Type: Article
• Acceptance Date: Sep 14, 2016
• Online Publication Date: Dec 9, 2016
• Publication Date: 2017-07
• Deposit Date: Apr 18, 2024
• Journal: Business Strategy and the Environment
• Print ISSN: 0964-4733
• Electronic ISSN: 1099-0836
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• Volume: 26
• Issue: 5
• Pages: 609-625
• DOI: https://doi.org/10.1002/bse.1940
• Keywords: environmental audits, third-party assurance, value relevance, environmental management, firm performance
• Public URL: http://researchrepository.napier.ac.uk/Output/3596222