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AAA Spark Meeting of Regions

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In the Short-Term, It’s Never the Wrong Time to Certify: The Mitigating Impact of Certification on Firm Valuation

Mon, May 24, 3:30 to 4:30pm, Virtual, TBA

Abstract

This article considers the timing of the disclosure of a firm’s environmental certification. In general, certifications comply with signaling and legitimacy theories and serve to bolster a firm’s reputation, financial performance, and valuation, among other benefits. However, when a firm finds itself facing a reputational threat it is unclear whether disclosing a recent certification would provide those same benefits or be perceived by investors as hypocritical (i.e. a disingenuous tool to distract from the threat). Our findings suggest that in the short-term, the disclosure of the certification benefits the firm regardless of the current reputational environment, good or bad. More specifically, investors view the certification as a benefit (rather than hypocritical) even when its disclosure was immediately proceeded by a reputational threat.

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