RBUS 6923 : Scientific Method - Valuation of Environmental Capital Expenditure - Finance Assignment Help

Assignment Task :

Question #2

In a 2004 study, Clarkson, Li, and Richardson examine the market valuation of environmental capital expenditure (ECE) investment related to pollution abatement in the pulp and paper industry. They predict that the ECEs of low polluting firms (those that over-comply with existing environmental regulations) will be viewed as an asset by the capital markets (i.e., NPV > 0) while the ECEs of high polluting firms (those that just meet minimal environmental requirements) will be viewed by the capital markets as an expense with no future benefit potential (i.e., NPV = 0). In addition, they predict, that high polluting firms will have unbooked environmental liabilities but that low polluting firms will not (i.e., that the market value of the high polluting firms will be lower, all else held equal).

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