Essays on environmental behavior of the firm and financial market evaluation

This dissertation is a contribution to the analysis of voluntary approach in environmental economic policy and the role of financial market It is aimed to enhances our understanding of the mechanism of "voluntary" compliance of a firm to environmental policies that might be costly for a firm at the first place. It has a great importance as Voluntary Approaches are believed to have potential as an alternative/a complementing policies to conventional environmental policies such as governmental regulations and economic incentive systems. Yet not too many researches have been conducted on this topic. It consists of two essays.; In the first essay, Voluntary Approaches are briefly explained in comparison to other conventional environmental policy tools, and its system and history. Then we focus on ISO14001 as an important example of Voluntary Approaches and overview ISO14001. We take Japan as a most prevailing example of ISO14001 and introducesurvey conducted in Japan as a part of the OECD project to offer better view of "voluntary" mechanism.; In the second essay, we suggest a simple theoretical model to explain how voluntary participating to such an environmental program might lead to higher market value of a firm. Under certain economic environment, two markets for "dirty" and "cleaner" goods exist where consumers (producers) self-select which good to consume (produce) according to their income (efficiency) level. A clear good producer exhibit higher profit than a single (dirty good) market economy. This theoretical exercise suggest that voluntary approach policies, such as ISO14001 can publicly guarantee the quality of a good or production process and thus sustain the separating equilibrium. Then we empirically tested the model using date from publicly-held manufacturing firms and their ISO14001 certificate status in Japan. We find that acquisition of ISO14001 certificate does contribute to a higher market evaluation of a firm. Our findings suggest that financial market properly reward a firm striving for environmental promotion by higher evaluation in the market to such a firm and thus encourages a firm to behave environmentally friendly.