Time Horizons of Environmental Versus Non-Environmental Costs: Evidence from US Tort Lawsuits
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Authors
Regnier, Eva
Tovey, Craig
Subjects
environmental
management
accounting
corporate sustainability
discount rate
time horizon
EPA
investment valuation
management
accounting
corporate sustainability
discount rate
time horizon
EPA
investment valuation
Advisors
Date of Issue
2007
Date
2007
Publisher
John Wiley & Sons, Ltd and ERP Environment
Language
Abstract
One explanation for a positive correlation between environmental and financial performance
at the firm level is a bias in firms’ investment evaluation processes caused
by systematic differences between environmental and other investment opportunities.
One of these systematic differences, often hypothesized but still unverified, is
that environmental costs occur farther in the future than other costs. We empirically
test this hypothesis, and find statistically significant support for it. In our data set the
mean time lag for environmental costs was more than ten years, compared with five
years for the control set costs. Such a difference could induce managers to accept
too much environmental liability if they evaluate investments using discounted cash
flow methods with a discount rate based on the firm-wide cost of capital.
Type
Article
Description
The article of record as published may be found at http://dx.doi.org/10.1002/bse.494
Series/Report No
Department
Organization
Naval Postgraduate School (U.S.)
Identifiers
NPS Report Number
Sponsors
US Department of Energy Integrated Manufacturing Predoctoral Fellowship
Funder
US Department of Energy Integrated Manufacturing Predoctoral Fellowship
Format
17 p.
Citation
Business Strategy and the Environment. 16, 249–265 (2007)
Distribution Statement
Rights
This publication is a work of the U.S. Government as defined in Title 17, United States Code, Section 101. Copyright protection is not available for this work in the United States.