How does capital market respond to Certified Emission Reductions (CERs) announcements in India

Abstract

Purpose The purpose of this paper is to analyze the relationship between Certified Emission Reductions (CERs) information and a firm’s stock prices. Design/methodology/approach The present study is based on 193 CERs announcements by Indian firms over a 13-year period 2005–2017. The event study methodology is used to examine the impact of CERs announcements on a firm’s share prices. Findings The study suggests that the issuance of CERs did not produce any significant abnormal return. More specifically, the outcomes of event study shows that over a two-day event window from the event day to the day after the event (i.e. days 0 to 1), the mean and median of AARs are −0.25 and −0.34 percent, respectively. The abnormal returns on day 1 are not statistically significant as per the t-test. Moreover, the mean and median of abnormal returns after one day (−1) are negative, indicating that investors react negatively to CERs announcements. However, the mean and median of CAARs over both the two-day (i.e. days −1 to 0 and days 0 to +1) and three-day (i.e. days −1 to +1) event windows are positive, but not statistically significant based on the t-test. Research limitations/implications The findings of the study are quite comprehensive, relatively used only market-based criteria of a firm’s financial performance, e.g., share price, at times, inhibits generalizing the results. Originality/value To the best of the author’s knowledge, the present study is a first of its kind to investigate the relationship between the CERs information and a firm’s stock prices.

Accounting for certified emission reductions (CERs) in India

“…The CERs disclosure and reporting practices are improved as It is challenging to measure the accounting disclosure implications of carbon credits. Therefore, the carbon accounting framework should develop for recognition, measurement and disclosure of CERs in financial statements (Kumar and Firoz, 2019b). The uniform Accounting standards should be developed by the accounting setters/professionals for emission credits disclosure practices and legal or regulatory provisions should be incorporated in the legislation for forcing firms to disclose CERs in financial statements.…”

“…Moreover, the uniform Accounting standards are required to make Indian firms’ CERs disclosure practices better understandable and comparable with each other. This can be achieved through wide consultations with academicians, environmentalists, companies and government authorities (Kumar and Firoz, 2019b). The companies should encourage the best practices for CERs disclosure and their financial market implication in order to create a positive image for the company among various stakeholders. There should be a separate section in the annual reports for CERs disclosure, which should provide both quantitative and qualitative information related to carbon credit. Today’s business environment is very dynamic throughout the world.…”

“…It is challenging to measure the accounting disclosure implications of carbon credits. Therefore, the carbon accounting framework should develop for recognition, measurement and disclosure of CERs in financial statements (Kumar and Firoz, 2019b).…”

“…Moreover, the uniform Accounting standards are required to make Indian firms’ CERs disclosure practices better understandable and comparable with each other. This can be achieved through wide consultations with academicians, environmentalists, companies and government authorities (Kumar and Firoz, 2019b).…”

Impact of carbon emission on financial performance: empirical evidence from India

“…These findings indirectly confirm the negative effect of carbon emission on financial performance. Kumar and Firoz (2019) have further studied the investors' reaction toward the announcement of certified emission reductions, however their findings are limited to only market-based criteria, i.e. a share price that restricts the utility of research.…”