The Importance of Corporate Environmental Reputation to Investors

Purpose: This paper explores how Corporate Environmental Reputation (CER) affects the association between current annual stock returns and current and future annual earnings. In particular, it examines the potential usefulness of CER to investors in predicting future earnings. Methodology: We use the returns-earnings regression model introduced by Collins et al. (1994) to examine the importance of CER for investors. We use a sample of 889 non-financial firms listed on the London Stock Exchange from 1996 to 2004. Findings: We find that firms with higher levels of CER scores exhibit higher levels of share price anticipation of earnings than firms with lower levels of CER scores. Originality: This paper is the first direct evidence that CER contains value-relevant information. Such information is potentially useful to investors in anticipating future earnings.