The influence of carbon performance on the financial debt of listed companies in an emerging economy: Does company size matter?

Abstract

This paper analyses the extent to which the impact of carbon performance on corporate financial debt varies according to company size. The system Generalized Method of Moments (GMM) and the Fixed Effects Panel Threshold regression models are deployed to consider 107 South African listed companies (CDP South Africa) spanning the period 2014–2018. The GMM outcomes demonstrate that carbon performance is negatively significant to firm financial debt in all the regression equations in the short‐run settings (both with and without interaction terms) and the long‐run setting (except for the ROA regression without interaction term, which is just negative). Moreover, the interaction term, carbon performance × company size is also significant and negatively related to debt in short‐run contexts (except for the ROA regression with an interaction term that is just negative) for all equations. In the long run, the interaction term is also significant and negatively related to debt in all the regressions analysed in this paper. The panel threshold regression framework highlights a threshold level of 7.4268 below (above) which the financial debt of small (large) companies, decreases (increases) when carbon performance increases. Granger causality findings and policy suggestions are also presented.

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