Carbon Emissions Reduction and Corporate Financial Performance: The Influence of Country-Level Characteristics

Abstract

Using a cross-country dataset covering 9265 observations on 1785 firms representing 53 countries over the period 2004–2019, this study investigates the relation between carbon emissions reduction and corporate financial performance (CFP). We perform OLS regressions with fixed effects. We found that carbon emissions reduction increases the return on assets, the return on equity, and the return on sales, whereas it has no effect on the Tobin’s Q and the current ratio. The positive relationship with the return on assets is stronger for firms with a higher responsibility score. We study country characteristics by modeling GDP growth, overall emissions within a country, and the presence of carbon emissions legislation. Our results indicate that the overall carbon emissions of a country and the presence of carbon emissions legislation are related to both corporate carbon emissions reduction and CFP. Moderating effects of the country’s overall emissions and the presence of carbon emissions legislation do not affect the relationship between carbon emissions reduction and CFP. Despite the further understanding gained, the issue of whether it “pays to be green” can still not be resolved well.

The Relationship Between Corporate Internet Reporting and Firm Performance: Evidence from Egypt

“…Contrary to most of the prior literature (e.g., Kyere and Ausloos, 2021;van Emous et al, 2021;Saygili et al, 2021 andSecinaro et al, 2020), findings show a substantial negative association between ESG and ROA. Thus, ESG has an adverse effect on firm performance rejecting H2.…”

“…),Saygili et al (2021) andvan Emous et al (2021) find positive significant influence of company size on ROA. It is argued that larger firms tend to perform better than smaller ones due to their ability to attract different stakeholders (Hussein and Nounou, 2021).…”

“…ROA measures how successful an organization is with respect to its total assets and demonstrates how effectively management is employing the company's total assets to generate profit. ROA is also used in literature studying impact of ESG on firm performance such as: Danso et al ( 2019), Secinaro et al (2020), Alareeni and Hamdan (2020), van Emous et al (2021). Research argues that ROA significantly influence stock prices (Sukesti et al, 2021).…”

“…A single measure of company performance is used; ROA, for fear of creating multicollinearity problem due to correlation between different measures. Moreover, this dependant variable is lagged following van Emous et al (2021) to avoid endogeneity bias. The regression model below was created in order to evaluate the hypotheses.…”

“…Following previous research, this study controlled for some variables that are likely to influence the results to ensure robustness of the study. Again, following prior literature, multiple control variables are included to reduce the threat of endogeneity and to reduce the effect of omitted variables (van Emous et al, 2021;Saygili et al, 2021). These variables are: company size, leverage, liquidity, growth and industry sector.…”