Financial slack and environmental expenditures: Value relevance in the Brazilian stock market

ABSTRACT The objective of this article is to evaluate the effect of financial slack on the value relevance of environmental expenditures in Brazilian capital market firms. The Brazilian literature, unlike the foreign literature, has neglected to investigate the value relevance of environmental performance information. The study addresses the combination of environmental information with the financial condition of firms within the scope of value relevance, obtaining evidence not yet contemplated in the literature on the Brazilian capital market. It is noteworthy that the financial perspective strongly influences the valuation of firms in terms of the environmental dimension. Companies that engage in environmental spending and are in a better financial position are better valued and considered economically interesting. The same is not true for firms in a worse financial position. The study shows how the environmental dimension, which is not a priority from the shareholder's point of view, can be the object of investor attention if the financial condition requirement is met. The market monitors environmental expenditures in order to assess much more the extent of the effects of these expenditures on the generation of future cash flows rather than the company's environmental commitment. The sample includes 52 companies whose shares were traded on the B3 S.A. in the period 2009-2018, totaling 252 observations. The model proposed by Ohlson was used, adapted according to the literature, and operationalized in POLS models. In addition, analyses were reproduced considering the possible moderating effect of financial slack measures on the environmental spending proxy. The results indicate that environmental spending contributes to reducing the valuation of firms, signaling to investors only future economic costs. Financial slack was found to be an important element in the valuation of firms with environmental expenditures, and companies with environmental expenditures and greater financial slack had higher valuations than those with less financial slack. RESUMO O objetivo deste artigo é avaliar o efeito da folga financeira no value-relevance de gastos ambientais em firmas do mercado de capitais brasileiro. A literatura nacional tem negligenciado a abordagem de investigações sobre value-relevance de informações ambientais de desempenho, diferentemente do que ocorre na literatura estrangeira. O estudo aborda a combinação de informações ambientais com a condição financ