Corporate Environmental Responsibility and Firm Information Risk: Evidence from the Korean Market

Abstract

Despite the potential benefits of a firm’s corporate environmental commitment to its information environment, few empirical studies examine the relationship between corporate environmental responsibility (CER) and firm information risk in emerging markets. In such markets, better corporate transparency and less information asymmetry are becoming increasingly important owing to firms’ poor governance structures, the lack of protection for investors, the substantial participation of unsophisticated individual investors, and so on. Using a comprehensive sample of firms engaged in CER for the period from 2005 to 2016, we find that a firm’s CER score has a negative effect on measures of firm information risk in the emerging Korean market, which is characterized by poor corporate governance and a strong influence of owner–managers. Furthermore, our results show that the negative relationship between CER and information risk is more pronounced for firms with higher uncertainty (lower transparency). Thus, we conclude that CER enhances a firm’s information environment by reducing investors’ information risk.