Financial Reporting Research Group Working Papers,
University of Aarhus, Aarhus School of Business, Department of Business Studies

Abstract: This paper examines the effect of environmental information on the investment

decisions of investors. The motivation for the experimental design

applied in this study is that unless actual decision making is observed,

the potential usefulness of environmental information (or lack

thereof) cannot be taken for granted. The study is based on an experiment

where groups of investors (varied by experience) were asked to

make investment allocation decisions based on financial information and

on supplementary environmental information (varied between cases). As

an investment allocation decision (varied by investment horizons) the

groups were asked to allocate funds to two companies based on the available

information. The findings suggest that environmental information has

the potential to influence investment allocation decisions. The findings

also suggest that the influence of environmental information on investment

allocation decisions is mitigated by the variables considered explicitly

in this study, i.e., the investment horizon (varied as short and long)

and investor experience (varied as novice and experienced investor). It is

concluded that because allocation decisions are multifaceted problems,

mixed results related to the influence of environmental information should

be expected

Keywords: Environmental reporting; Environmental disclosures; Allocation; Decision making; Investment horizon; Investors; Experiment

66 pages, June 14, 2006

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