Carbon Emission Reduction and Financial Performance in an Emerging Market: Empirical Study of Indian Firms

Abstract

The study aims to examine the impact of carbon emission reduction on financial performance in an emerging market context. Thirty eight Indian-listed firms were drawn from the Bombay Stock Exchange for the sample, and firms’ data were collected from sustainability reports and Capitaline Plus corporate database. Carbon productivity and market-to-book ratio were used as a proxy to measure carbon emission reduction and financial performance, respectively. Results show a positive association between carbon emission reduction and financial performance after employing the appropriate panel regression model. This study contributes to the ongoing “pays to be green” literature, and the findings of this study complement the “win–win” research by empirically showing that corporate effort to reduce carbon emission generates a positive impact on firm’s financial performance. Moreover, the findings provide crucial managerial and policy implication.

Impact of carbon productivity on firm performance: moderating role of industry type and firm size

“…Further, shareholders possibly perceive improvement in carbon productivity as a constructive step toward securing the firms' future sustainability and thus award the firm in the form of higher market value (Nishitani and Kokubu, 2012;Matsumura et al, 2014). The positive relationship between carbon productivity and financial performance also confirms the findings of prior empirical studies done in the context of emerging economies (Ganda and Milondzo, 2018;Wang et al, 2021;Kalash, 2021;Makan and Kabra, 2021).…”

“…The findings revealed a significant impact of CDP scores on leverage, ROA, operating profitability and ROE, but no significant influence on stock market performance. Makan and Kabra (2021) studied 38 listed firms in the Indian context for the period 2016-2019. The study found a positive impact of carbon emission reduction efforts on financial performance as measured by the market-to-book ratio.…”

“…The primary independent variable of the study is carbon productivity (CRP) which is measured as the ratio of net sales to the total of Scope 1 and Scope 2 carbon emissions. Prior studies like Nishitani and Kokubu (2012) and Makan and Kabra (2021) have used similar measures for CRP. We expect CRP to have a positive impact on firms' financial performance.…”

“…Two conflicting arguments sum up the relationship between environmental/carbon productivity and firm performance, i.e. the "win-lose" argument and the "win-win" argument (Boiral et al, 2012;Makan and Kabra, 2021). While the former suggests investment in environmental management practices is costly, thus unfavorably affecting firms' competitiveness, the latter argues such investment is a boost to firms' competitiveness and future sustainability.…”

Borsa İstanbul'da Pandemi Dönemindeki Uzun Vadeli İHA Performansına İlişkin Karşılaştırmalı Bir ÇKKA Uygulaması

“…This pivotal ratio, which shows how much the company can improve its market value compared to equity, was preferred in another study in the analysis of the financial performance of 73 companies traded on the Sao Paolo Stock Exchange (Miralles-Quiros et al, 2018). Moreover, in a study examining the performance of 38 companies traded on the Bombai Stock Exchange, the M/B ratio was taken as the financial performance criterion (Makan and Kabra, 2021).…”