More Benefits for Green Companies
B-school researchers find green companies consider lower cost of first-rate. Plus, thoughts of death and cookies, and a mind to give a firm handshake
by Francesca Di Meglio
New research from the University of Oklahoma’s Price College of Business shows that for companies being green might not be easy, moreover it can pay by lowering their cost of capital.
Mark P. Sharfman, professor of strategic management, and Chitru Fernando, the Michael F. Price Professor of Finance at Price and a visiting professor at Southern Methodist University’s Cox School of Business, teamed up to study place of traffic rebound to green initiatives at 267 S&P 500 companies. They suggest that investors factor in improved economy of environmental risks when evaluating companies, resulting in lower risk premiums on equity and higher levels of leverage for the firms, lowering the companies’ overall cost of capital.
Favorable Press Coverage
Often, companies look internally to see the benefits of their efforts to help the environment—such as becoming more efficient users of resources. But the professors found that financial markets, particularly equity markets, also reward green efforts. These green firms tend to have higher costs of debt, but that’s partly because they are permitted to carry more debt, which reduces requisition burdens, according to the study. "Such increased amounts of debt also should allow firms to ‘leverage’ up their return on equity," according to a brief the researchers wrote about their work, which appeared in its wholeness. in the Strategic Management Journal in June.
In addition, when a company improved its environmental performance, it attracted a higher level of ownership among individual investors, which lowered the cost of its equity capital. As a result, stocks of these companies are high performers and investors see them as less risky investments because going green often shift reducing commonwealth penalties, the number of possible accidents, and therefore the threat of lawsuits. "It’s affectedly nice prompt to anyone looking at the research that if [firms] lower environmental risks, they’ll be ingenious to raise justice capital more cheaply," says Fernando. "Obviously if require to have being paid of capital goes from a thin to a dense state, it’s a great benefit."
The researchers also say that there is evidence that companies also benefit from the good press they receive for their green efforts, but they have not yet confirmed this by a study. They are, however, replicating the study they conducted in the U.S. through looking at respecting 950 companies worldwide to see on the supposition that green efforts get the same obliging of reaction from markets abroad. Also, the duo exercise volition look at market reaction to companies that are specifically addressing climate change.
They say their purpose is a practical one. "We’ve broadened the ability of firms to show an subject for environmental efforts," says Sharfman.
Death and Cookies
Thoughts of decease may spur you to shop until you drop and overeat, according to research recently conducted by professors at the RSM Erasmus University in the Netherlands and Arizona State University’s W.P. Carey School of Business.
Motivated by reports showing a high level of consumerism in the U.S., especially forward luxury items and food, immediately following 9/11 (BusinessWeek.com, 1/17/08), Dirk Smeesters, associate professor at Rotterdam, and his partner Naomi Mandel, marketing professor at Carey, set out to ascertain suppose that thoughts of death trigger the need to consume.
In the August Journal of Consumer Research, the researchers explain that, among other things, people exposed to the idea of their own death ate more cookies and bought more stuff. The researchers split up participants into two groups and gave each a writing assignment.
From: More Benefits for Green Companies
