Page 44 - CITN 2017 Journal

studies of Hassel et al., (2005)

It is possible for environmental performance information be useful in explaining stock
price behaviour but not to be associated with improved financial performance; research
also indicates two distinct opinions of the subject. The value creation school views
environmental performance as a way to increase competitive advantage and improve
financial returns to the investors while the cost-concerned school argues that
environmental investments and high environmental performance represent only increased
costs, resulting in decreased earnings and lower market values (Hassel et al., 2005). The
cost concerned view argues that any environmental expenditure above requirements of the
law and regulatory compliance does not serve the best interest of shareholders and will
result in degradation of firms' performance and value. According to the cost concerned
school the relationship between environmental performance and market value of a firm is
expected to be negative (Jaggi and Freedman 1992). Findings of Hassel et al., (2005)
supports this view as they show significant results that environmental performance is
negatively associated with the market value of firms.

The environmental management literature suggests that firms can gain sustainable
competitive advantages by reducing the adverse impacts of their operations on the natural
environment (Hart 1995; Aragon-Correa & Sharma, 2003). Porter & Van der Linde (1995)
have argued that pollution reduction provides future cost savings by increasing efficiency,
reducing compliance costs, and minimizing future liabilities. Proponents of this posit a
positive relationship between environmental performance and market value (Hart &
Ahuja, 1996; Konar& Cohen 2000; King & Lenox, 2001; Al-tuwairjri et al., 2004). In
addition to environmental performance information being relevant to equity valuation,
Clarkson et al. (2013) also found that a proactive environmental strategy and the signaling
of such a strategy to investors can enhance a firm's stock price. Clarkson et al. (2011)
obtained results which indicate that although becoming ''green” is associated with
improvement in firms performance. This strategy cannot be easily mimicked by all firms.

3. METHODOLOGY
The research employs a quantitative research method; the sample was selected using
criterion sample. This sample was selected based on the criterion that they are part of the
FTSE 100 share index between 2009 and 2013.The FTSE 100 consists of largest
companies by market capitalisation from several sectors; these companies have the most
comprehensive disclosure and exposure in terms of environmental impact. The sample
was reduced to 94 companies due to missing data in some of the years considered. The
companies that were excluded did not have the required data because they became a part of
this elite group after the start date of the study. They include Coca-cola HBS, Direct line
group, Glencore Plc, International consolidated airlines group, Royal mail plc and TUI
travel Plc. The list of companies in the sample is shown below:

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