The Value of Green: The Effect of Environmental Rankings on Market Cap

Abstract

This study empirically examines the relationship between environmental rankings and market cap value. The financial indicators of the Altman Z-Score are used to build a model for market cap value. The data used is from 2000-2008 for 100 of the companies included in Newsweek’s Top 500 Green Rankings 2009. The results support the hypothesis that companies with high environmental rankings have higher market cap values than comparable companies with lower rankings. This shows that either investors are including environmental factors in their stock price valuations, or that a high environmental rank indicates other intangible variables that contribute to a company's value.