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Environmental reporting through financial statements: the Peruvian evidence. Samuel Mongrut Montalván Jesús Tong Chang. Introductory notes (I). This presentation involves the results of two papers: Environmental reporting through financial statements: The Peruvian evidence

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environmental reporting through financial statements the peruvian evidence

Environmental reporting through financial statements: the Peruvian evidence

Samuel Mongrut Montalván

Jesús Tong Chang

introductory notes i
Introductory notes (I)
  • This presentation involves the results of two papers:
    • Environmental reporting through financial statements: The Peruvian evidence
    • Is there a market payoff for being green at the Lima Stock Exchange?
  • These two papers are part of a broader research funded by the Santander Bank Central Hispano Chair: “Environmental accounting for Peru: practices and proposals”

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introductory notes ii
Introductory notes (II)
  • This research includes two previous papers:
    • Environmental accounting and reporting: the search for a Peruvian framework
    • Reporte medioambiental a través de los Estados Financieros: un marco regulatorio para el Perú.
  • In Peru it is compulsory to apply the IAS (or IFRS) and alternatively one may apply the U.S. GAAP.

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environmental reporting through financial statements the peruvian evidence1
Environmental reporting through financial statements: the Peruvian evidence
  • Research questions
  • Sample
  • Preliminary results (we are still collecting surveys!)
  • Preliminary conclusions

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1 research questions
1. Research questions
  • Do firms that operate in Peru report their environmental costs, expenses, liabilities and revenues? Which media do they use to report them?
  • Do these firms know and use environmental management tools? Which ones?
  • What are the reasons to adopt an EMS for firms operating in Peru?
  • Other issues are also being analyzed: regulatory standards, use of EMA tools,etc.

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2 sample
2. Sample
  • We have a total sample of 42 firms. 30 firms with ISO 14001 certification granted (population–31/08/2003) and 12 firms with EMS (unknown population)
  • The following results correspond to 21 firms with ISO 14001 granted and 6 firms with EMS.

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2 sample ii total composition
2. Sample (II): Total composition

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2 sample iii up to now
2. Sample (III): Up to now

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3 preliminary results i rq 1a
3. Preliminary results (I): RQ 1a

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3 preliminary results i rq 1b
3. Preliminary results (I): RQ 1b

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3 preliminary results ii rq 2
3. Preliminary results (II): RQ 2

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3 preliminary results iii rq 3
3. Preliminary results (III): RQ 3

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4 preliminary conclusions
4. Preliminary conclusions
  • Although environmental expenses, revenues, liabilities and assets are identified, registered and reported, most of them are reported by means of stand-alone reports and the annual report.
  • Very few firms know and use EMA tools.
  • The most important reasons to adopt EMS seems to be its accordance with the environmental charter of the company and to improve environmental performance: A true commitment with the environment?

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is there a market payoff for being green at the lima stock exchange
Is there a market payoff for being green at the Lima Stock Exchange?
  • Research questions
  • Methodology and tests
  • Sample
  • Results
  • Conclusions

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1 research question
1. Research question

A. Several studies have detected abnormal returns or above average risk-adjusted returns attached to environmental responsability especially in the U.S. Examples White (1995), Cohen, Scott and Naimon (1995), Soyka y Feldman (1998) and so on.

B. This study adresses the following question: Do traded firms at the LSE offer abnormal returns around the announcement date of an ISO 14001 certification?

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2 methodology and tests i
2. Methodology and tests (I)

A.We have used a typical event study analysis.

B.We estimated the abnormal returns using four especifications:

  • The Constant-Mean-Return-Model
  • The Index Model with three different especification for the estimation of its parameters: the Market Adjusted Model (alpha=0 and beta=1), the GARCH model, and the model of Theil (where alpha and beta are the median of their respective distributions)

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2 methodology and tests ii
2. Methodology and tests (II)

A. For each model especification we determined the significance of the abnormal returns (for the whole sample) using four different tests: two parametric tests (J1 and J2) and two non-parametric tests (J3 and J4). (Details about the maths in the paper).

B. However, since we have only 10 observations available the tests are only indicative, but not conclusive.

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2 methodology and tests ii1
2. Methodology and tests (II)
  • J2 is more robust than J1
  • J1 and J2 are really not suitable tests because stock returns in emerging markets (in Peru) have excess kurtosis and are skewed.
  • J3 (the sign test) may not be well specified if the distribution of abnormal returns is skewed. This could be overcomed with the generalized sign test.
  • J4 (the rank test of Corrado) could lose power if abnormal returns are highly volatile.

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2 methodology and tests ii2
2. Methodology and tests (II)
  • Given the previous comments we should expect a bad performance of J4 and we must regard J1-J3 with caution given the short sample (all tests are based upon asymptotic results).
  • The null hypothesis in all tests is that the given event has no impact on the behavior of security returns. A rejection of the null leads to the presence of abnormal returns.

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3 sample i
3. Sample (I)
  • From the population of 30 firms with ISO 14001 certification granted, only 14 firms were traded at the LSE.
  • From these 14 firms, only 10 firms fulfilled the sample requirements.
  • Sample requirements:

Estimation window: 214 daily obs.

Event window: 61 daily obs.

Announcement date: month/year

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3 sample i composition
3. Sample (I): Composition

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3 sample i composition1
3. Sample (I): Composition

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4 results i mean constant return model
4. Results (I): Mean-Constant Return Model

CAAR-Mean constant return model

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4 results ii market adjusted model
4. Results (II): Market Adjusted Model

CAAR-Market adjusted model

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4 results iii garch 1 1
4. Results (III): GARCH (1,1)

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4 results iv theil
4. Results (IV): Theil

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5 conclusions
5. Conclusions
  • One is able to detect traces of abnormal returns in the four specifications, but the magnitude of these returns is low.
  • The especifications with less restrictions (GARCH and Theil) perform the best.
  • As expected, parametric tests are not helping much, as well as the rank test of Corrado.

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5 conclusions1
5. Conclusions

D. From the tests one suspect the existence of information leakage for the days before the announcement (about 20 days).

  • There seem to be also abnormal returns in the announcement date and some weeks later.

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