Environmental Sustainability Based on Market Inefficiency and Environment Uncertainty

Mohsen Rashidi, Masoud Taherinia, Mahdi Moazeni, Seyed Saeed Hosseini, Hamidreza Rezaeepanah

Abstract

This study is aimed at examining the impact of market inefficiency and environment uncertainty on the environmental sustainability. Prior research has struggled to establish this relation empirically; moreover, some evidence points to the possibility of the sustainable environment being lower for firms with market inefficiency and environment uncertainty. The opportunistic approach of managers leads to decisions about personal interests and imposing costs on shareholders by decreasing risk taking. To investigate this issue, data on companies listed on the Tehran Stock Exchange for the period of 2008-2018 were extracted and a panel regression model was used to test the research hypotheses. Being consistent with the expected relation between the phenomena under study, it decreases with respect to CEO opportunistic approach. Managers may benefit from increased fluctuations in sustainability orientation, but they are more sensitive than shareholders and have less restrictive choice that avoids higher risk. Therefore, corporate sustainability reporting changes with the market inefficiency and environmental uncertainty.

 

 

Keywords:  Market Inefficiency, Environment Uncertainty, Environmental Sustainability.


Full Text:

PDF


References


STIGLITZ L. Estimating the components of the bid/ask spread. Journal of Financial Economics. 2003. 21(1): 123-142.

LAURI A. Asymmetric Information: Theory and Applications. Seminar in Strategy and International Business. Helsinki University of Technology 2003.

ARMSTRONG, C., J. CORE, D. TAYLOR, and VERRECCHIA R. When does information asymmetry affect the cost of capital? Journal of Accounting Research, 2011, 49(1): 1-40.

HSU C., NOVOSELOV K. E., and WANG R. Does Accounting Conservatism Mitigate the Shortcomings of CEO Overconfidence? The Accounting Review: 2017, 92(6): 77-101.

BUCHHOLZ R.A., and ROSENTHAL, S.B. Toward a contemporary conceptual framework for stakeholder theory. Journal of Business Ethics, 2005, 58: 137- 148.

ARAS G. and CROWTHER D. Is the global economy sustainable? In BARBER S. (Ed.) The Geopolitics of the City, Forum Press, London, 2007ª: 165- 194.

ARAS G. and CROWTHER D. Sustainable corporate social responsibility and the value chain. In CROWTHER, D. and ZAIN, M.M. (Eds.) New Perspectives on Corporate Social Responsibility. MARA University Press, Shah Alam, 2007b: 119- 140.

HERZIG C. and SCHALTEGGER S. Corporate sustainability reporting: another view. In BENNETT, M and BURITT, R.L. (Eds.) Sustainability Accounting and Reporting. Kluwer Academic Publishers, Boston Dordrecht/London, 2011: 301- 324.

HU J. and LIN Z. The implied cost of equity capital, corporate investment and chief executive officer turnover. Account Finance, 2015, 55: 1041-1070.

JENSEN M., and MECKLING W. H. Theory of the firm: managerial behavior, and ownership structure, Journal of Financial Economics, 1976, 3: 305–360.

LELAND H. E. Agency costs, risk management, and capital structure. Journal of Finance, 1998, 53(4): 1213–1243.

CHAVA S., KUMAR P. and WARGA A. Managerial agency and bond covenants. Review of Financial Studies, 2010, 23(3): 1120–1148.

GILJE E. P. Do firms engage in risk-shifting? Empirical evidence. Review of Financial Studies, 2016, 29(11): 2925–2954.

MARCH J. G. Exploration and exploitation in organizational learning. Organization Science, 1991, 2(1): 71–87.

ARMSTRONG C. S., and VASHISHTHA R. Executive stock options, differential risk-taking incentives, and firm value. Journal of Financial Economics, 2012, 104(1): 70–88.

BERK J. B., STANTON R., and ZECHNER J. Human capital, bankruptcy and capital structure. Journal of Finance, 2010, 65(3): 891–926.

MILIDONIS A., and STATHOPOULOS K. Managerial incentives, risk aversion, and debt. Journal of Financial and Quantitative Analysis, 2014, 49(2): 453–481.

GUAY W. R. The sensitivity of CEO wealth to equity risk: An analysis of the magnitude and determinants. Journal of Financial Economics, 1999, 53(1): 43–71.

RAJGOPAL S., and SHEVLIN T. Empirical evidence on the relation between stock option compensation and risk taking. Journal of Accounting and Economics, 2002, 33 (2): 145–171.

ARAS G. and CROWTHER D. Governance and sustainability: an investigation into relationship between corporate governance and corporate sustainability. Management Decision, 2008, 46(3): 443- 448.

RUBENSTEIN D.B. Bridging the gap between green accounting and black ink. Accounting Organizations & Society, 1992, 17(5): 501- 508.

ROOSA S.A. Sustainable Development Handbook, 2nd ed., 2010, The Fairmont Press, GA.

DIAMOND D., and VERRECCHIA R. Disclosure, liquidity and the cost of capital. Journal of Finance, 1991, 46 (4): 1325-1359.

VERRECCHIA, R. Essays on disclosure. Journal of Accounting and Economics, 2001, 32: 97-180.

BROWN S. & HILLEGIEST S. A. How Disclosure Quality Affects the Level of Information Asymmetry. Review of Accounting Studies, 200, 12: 443–477.

LEVITT A. The Importance of High Quality Accounting Standards, Accounting Horizons, 1998, 12: 79-82.

HUCHZERMEIER A., and LOCH C. H. Project management under risk: [33] Using the real options approach to evaluate flexibility in R&D. Management Science, 2001, 47 (1): 85–101.

HAMBRICK D. C., and CROZIER L. M. Stumblers and stars in the management of rapid growth. Journal of Business Venturing, 1985, (1): 31–45.

CHEN D., & ZHENG Y. CEO Tenure and Risk-Taking. Global Business and Finance Review, 2014, 19(1): 1-27.

SHYTI A. Overconfidence and Entrepreneurial Choice under Ambiguity. Academy of Management Proceedings, 2013, 1: 13508-13508. https://doi.org/10.5465/ambpp.2013.13508abstract

IMHOF M., SEAVEY S. E., and SMITH D. B. Comparability and Cost of Equity Capital. Accounting Horizons, 2017, 31(2): 125-138.

DICHEV I. D., & TANG V. W. Earnings volatility and earnings predictability. Journal of Accounting and Economics, 2009, 47 (1): 160-181.

XU X., WANG X. and HAN N. Accounting conservatism, ultimate ownership and investment efficiency, China Finance Review International, 2012, 2(1): 53-77.

BHUIYAN B. U. & HOOKS J. Cash holding and over-investment behavior in firms with problem directors. International Review of Economics & Finance, 2019, 61(C): 35-51. https://doi.org/10.1016/j.iref.2019.01.005.


Refbacks

  • There are currently no refbacks.