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The Impact of Environmental Strengths and Concerns on the Accounting Performance of Firms in the Energy Sector

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Energy Technology and Valuation Issues

Abstract

Energy sector firms are highly affected by the imposition of costs and community attitudes related to their environmental impact. In this chapter, we study the impact of environmental strengths and concerns of firms in the energy sector on their firm performance. We aim to uncover whether positive environmental activities add extra costs or help firms in the energy industry achieve a higher future profitability and compare this impact with firms that do not belong to that industry. Based on the environmental scores compiled by Kinder, Lyndenberg and Domini Research and Analytics, Inc., we show that the environmental concerns of US firms in the energy industry are significantly lower than their environmental strengths and this difference is much larger for energy firms than for firms that do not belong to the energy industry. In addition, we find that only the environmental concerns of energy sector firms have predictive value in terms of future corporate performance that is incremental to a group of earnings-predicting variables. Our results for the energy sector indicate that reducing environmental concerns pays off by improving corporate profitability.

This research was carried out thanks to financial support in the form of a grant from the Intercollegiate Center for Management Science and the Flemish IWT. We would like to thank the Editor, André Dorsman, and two anonymous reviewers for their constructive comments, which helped us improve the manuscript.

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Notes

  1. 1.

    The list of firms used in the energy sample is reported in Appendix table.

  2. 2.

    R2 is not a suitable criterion to choose the optimal model as adding a variable can only increase its value.

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Author information

Authors and Affiliations

  1. Department of Finance, University of Illinois at Chicago, 601 S. Morgan St., Chicago, IL, 60607, USA

    Özgür Arslan-Ayaydin

  2. Department of Finance, Katholieke Universiteit Leuven, 33 Korte Nieuwstraat, 2000, Antwerp, Belgium

    James Thewissen

Authors
  1. Özgür Arslan-Ayaydin
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  2. James Thewissen
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Corresponding author

Correspondence to James Thewissen .

Editor information

Editors and Affiliations

  1. Department of Finance, Faculty of Economics and Business Administration, VU University Amsterdam, Amsterdam, The Netherlands

    André Dorsman

  2. Department of Finance, University of Groningen Faculty of Economics and Business, Groningen, The Netherlands

    Wim Westerman

  3. School of Economics and Finance, Curtin University Curtin Business School, Perth, West Australia, Australia

    John L. Simpson

Appendix: List of Energy Firms in the Sample

Appendix: List of Energy Firms in the Sample

This table reports the list of names of the energy firms contained in the sample. This list also reflects the eventual change in the official name of the firm.

1

Abraxas Petroleum Corp.

71

Crosstex Energy Inc.

141

Magnum Hunter Resources Inc.

211

Royale Energy Inc.

2

AES Corporation (The)

72

CVR Energy Inc.

142

Marathon Oil Corp.

212

RPC Inc.

3

AGL Resources Inc.

73

Delek US Holdings Inc.

143

MarkWest Hydrocarbon Inc.

213

SandRidge Energy Inc.

4

Allegheny Energy Inc.

74

Denbury Resources Inc.

144

McMoRan Exploration Co.

214

SCANA Corp.

5

ALLETE Inc.

75

Devon Energy Corp.

145

MCN Energy Group Inc.

215

Schlumberger Ltd.

6

Alliant Energy Corp.

76

Diamond Offshore Drilling Inc.

146

MDU Resources Group Inc.

216

SEMCO Energy Inc.

7

Allied Waste Industries Inc.

77

Dominion Resources Inc.

147

Meridian Resource Corp. (The)

217

Sempra Energy

8

Allis-Chalmers Energy Inc.

78

Double Eagle Petroleum Co.

148

MGE Energy Inc.

218

SJW Corp.

9

Alon USA Energy Inc.

79

DTE Energy Co.

149

Middlesex Water Co.

219

SM Energy Co.

10

Ameren Corp.

80

Duke Energy Corp.

150

Mobil Corp.

220

Sonat Inc.

11

American Oil & Gas Inc.

81

Duquesne Light Holdings Inc.

151

Murphy Oil Corp.

221

South Jersey Industries Inc.

12

American States Water Co.

82

Duratek Inc.

152

Nabors Industries Ltd.

222

Southern Co. (The)

13

American Water Works Company Inc.

83

Eastern Enterprises

153

New Century Energies Inc.

223

Southern Union Co.

14

Amoco Corp.

84

Edge Petroleum Corp.

154

New Generation Biofuels Holdings Inc.

224

Southwest Gas Corp.

15

Anadarko Petroleum Corp.

85

Edison International

155

Newfield Exploration Co.

225

Southwest Water Co.

16

Apache Corp.

86

El Paso Corp.

156

NextEra Energy Inc.

226

Southwestern Energy Co.

17

Approach Resources Inc.

87

El Paso Electric Co.

157

NGAS Resources Inc.

227

Spectra Energy Corp.

18

Aqua America Inc.

88

Empire District Electric Co.

158

Niagara Mohawk Holdings Inc.

228

Spinnaker Exploration Co.

19

Aquila Inc.

89

Encore Acquisition Co.

159

Nicor Inc.

229

Stericycle Inc.

20

Arena Resources Inc.

90

Endeavour International Corp.

160

NiSource Inc.

230

Stone Energy Corp.

21

Artesian Resources Corp.

91

Energen Corp.

161

Noble Energy Inc.

231

Sunoco Inc.

22

Atlantic Richfield Co.

92

Energy East Corp.

162

Noram Energy Corp.

232

Superior Energy Services Inc.

23

ATP Oil & Gas Corp.

93

EnergySolutions Inc.

163

Northeast Utilities

233

Superior Well Services Inc.

24

Avista Corp.

94

Entergy Corp.

164

Northern Oil and Gas Inc.

234

Swift Energy Co.

25

Baker Hughes Inc.

95

EOG Resources Inc.

165

Northwest Natural Gas Co.

235

Targa Resources Partners LP

26

Basic Energy Services Inc.

96

EQT Corp.

166

NorthWestern Corp.

236

TECO Energy Inc.

27

Berry Petroleum Co.

97

EXCO Resources Inc.

167

NRG Energy Inc.

237

Tesoro Corp.

28

Bill Barrett Corp.

98

Exelon Corp.

168

NSTAR

238

TETRA Technologies Inc.

29

Black Hills Corp.

99

Exxon Mobil Corp.

169

NV Energy Inc.

239

Texaco Inc.

30

Boots & Coots Inc.

100

FirstEnergy Corp.

170

Occidental Petroleum Corp.

240

TGC Industries Inc.

31

BPZ Resources Inc.

101

Florida Progress Corp.

171

Ocean Energy Inc.

241

Toreador Resources Corp.

32

Brigham Exploration Co.

102

Forest Oil Corp.

172

Oceaneering International Inc.

242

Transmeridian Exploration Inc.

33

Bronco Drilling Company Inc.

103

Frontier Oil Corp.

173

OGE Energy Corp.

243

Transocean Ltd.

34

Burlington Resources Inc.

104

FX Energy Inc.

174

ONEOK Inc.

244

Tri-Valley Corp.

35

Cabot Oil & Gas Corp.

105

Gasco Energy Inc.

175

Ormat Technologies Inc.

245

TXCO Resources Inc.

36

Cadiz Inc.

106

Gastar Exploration Inc.

176

Oryx Energy Co.

246

UIL Holdings Corp.

37

Cal Dive International Inc.

107

GenOn Energy Inc.

177

Otter Tail Corp.

247

Ultra Petroleum Corp.

38

California Water Service Group

108

Geoglobal Resources Inc.

178

Parallel Petroleum Corp.

248

Unicom Corp.

39

Callon Petroleum Co./DE

109

Geokinetics Inc.

179

Parker Drilling Co.

249

Union Drilling Inc.

40

Calpine Corp.

110

GeoMet Inc.

180

Patina Oil & Gas Corp.

250

Union Pacific Resources Group

41

Carrizo Oil & Gas Inc.

111

Giant Industries Inc.

181

Patterson-UTI Energy Inc.

251

Unit Corp.

42

CenterPoint Energy Inc.

112

Global Industries Ltd.

182

Penn Virginia Corp.

252

Unitil Corp.

43

Central & South West Corp.

113

GMX Resources Inc.

183

Pepco Holdings Inc.

253

Unocal Corp.

44

Central Vermont Public Service Corp.

114

Goodrich Petroleum Corp.

184

Perma Fix Environmental Services Inc.

254

US Ecology Inc.

45

CH Energy Group Inc.

115

GPU Inc.

185

Petroquest Energy Inc.

255

Vaalco Energy Inc.

46

Cheniere Energy Inc.

116

Great Plains Energy Inc.

186

PG&E Corp.

256

Valero Energy Corp.

47

Chesapeake Energy Corp.

117

Grey Wolf Inc.

187

Pinnacle West Capital Corp.

257

Vantage Drilling Co.

48

Chesapeake Utilities Corp.

118

Gulfport Energy Corp.

188

Pioneer Natural Resources Co.

258

Vectren Corp.

49

Chevron Corp.

119

Halliburton Co.

189

Plains Exploration & Production Co.

259

Venoco Inc.

50

China Natural Gas Inc.

120

Harvest Natural Resources Inc.

190

PNM Resources Inc.

260

Vintage Petroleum Inc.

51

Cimarex Energy Co.

121

Hawaiian Electric Industries Inc.

191

Pogo Producing Co.

261

Warren Resources Inc.

52

Clayton Williams Energy Inc.

122

Helix Energy Solutions Group Inc.

192

Portland General Electric Co.

262

Waste Connections Inc.

53

Clean Harbors Inc.

123

Hercules Offshore Inc.

193

PostRock Energy Corp.

263

Waste Industries USA Inc.

54

Cleco Corp.

124

Heritage-Crystal Clean Inc.

194

PowerSecure International Inc.

264

Waste Management Inc.

55

CMS Energy Corp.

125

Hess Corp.

195

PPL Corp.

265

Waste Services Inc.

56

Columbia Energy Group

126

Houston American Energy Corp.

196

Pride International Inc.

266

Weatherford International Ltd.

57

Complete Production Services Inc.

127

Houston Exploration Company (The)

197

PrimeEnergy Corp.

267

Westar Energy Inc.

58

Comstock Resources Inc.

128

IDACORP Inc.

198

Public Service Co Of Colo

268

Western Gas Resources Inc.

59

Concho Resources Inc.

129

Integrys Energy Group Inc.

199

Public Service Enterprise Group Inc.

269

Western Refining Inc.

60

Conectiv Inc.

130

Isramco Inc.

200

Puget Energy Inc.

270

W–H Energy Services Inc.

61

Connecticut Water Service Inc.

131

ITC Holdings Corp.

201

Pyramid Oil Co.

271

Whiting Petroleum Corp.

62

ConocoPhillips

132

KCS Energy Inc.

202

Quaker Chemical Corp.

272

Williams Cos Inc. (The)

63

Consolidated Edison Inc.

133

Kerr-McGee Corp.

203

Questar Corp.

273

Wisconsin Energy Corp.

64

Consolidated Natural Gas Co.

134

Key Energy Services Inc.

204

Quicksilver Resources Inc.

274

W&T Offshore Inc.

65

Consolidated Water Co. Ltd.

135

Keyspan Corp.

205

Range Resources Corp.

275

Xcel Energy Inc.

66

Constellation Energy Group Inc.

136

Kodiak Oil & Gas Corp.

206

Raser Technologies Inc.

276

XTO Energy Inc.

67

Continental Resources Inc.

137

LG&E Energy Corp.

207

Remington Oil & Gas Corp.

277

York Water Company (The)

68

Core Laboratories NV

138

Louisiana Land & Exploration

208

Republic Services Inc.

278

Zion Oil & Gas Inc.

69

Covanta Holding Corp.

139

Lubrizol Corp. (The)

209

Rex Energy Corp.

  

70

Crimson Exploration Inc.

140

Magnum Hunter Resources Corp.

210

Rosetta Resources Inc.

  

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Arslan-Ayaydin, Ö., Thewissen, J. (2015). The Impact of Environmental Strengths and Concerns on the Accounting Performance of Firms in the Energy Sector. In: Dorsman, A., Westerman, W., Simpson, J. (eds) Energy Technology and Valuation Issues. Springer, Cham. https://doi.org/10.1007/978-3-319-13746-9_5

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