In the short-term, it is never the wrong time to certify: the mitigating impact of certification on firm valuation

Abstract

Purpose

This study aims to examine the timing of the disclosure of a firm’s environmental certification. In general, certifications comply with signaling and legitimacy theories and serve to bolster a firm’s reputation, financial performance and valuation, among other benefits. However, when a firm finds itself facing a reputational threat, it is unclear whether disclosing a recent certification would provide those same benefits or be perceived by investors as “greenwashing” or a disingenuous distraction from the threat.

Design/methodology/approach

This study is based on a case and survey the authors developed that is supported in methodology and approach by past academic work.

Findings

The findings suggest that in the short term, the disclosure of the certification benefits the firm regardless of the current reputational environment, good or bad. More specifically, investors view the certification as a benefit (rather than an attempt to distract) even when its disclosure was immediately proceeded by a reputational threat.

Research limitations/implications

This study is limited by the population of survey respondents from which the authors collected data and their internal predispositions and biases.

Practical implications

This work is applicable to firms that have engaged in certifications or are considering such certifications as well as firms that provide certification services. The study is also relevant to stakeholders and consumers of information related to certifications.

Originality/value

This study is operationalized through the use of a case and survey the authors developed. The research question the authors attempt to answer is derived from a question raised in the literature. The authors are unaware of any other study that addresses this question.

Citation

Pelzer, J.E. and Hogan, R.S. (2023), "In the short-term, it is never the wrong time to certify: the mitigating impact of certification on firm valuation", Meditari Accountancy Research, Vol. 31 No. 4, pp. 1109-1132. https://doi.org/10.1108/MEDAR-06-2021-1324