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Do Carbon Performance and Disclosure Practices Effect Companies’ Financial Performance: A Non-Linear Perspective

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Abstract

To find out how carbon performance and disclosure practices affects corporate’s financial performance, this study investigates its non-linear influence on financial performance by considering non-financial 100 businesses that are listed on National Stock Exchange 200 Index in India for the consecutive 12 years, i.e., from 2010 to 2021. It employs two indicators of environmental-related information like carbon performance which is measured in terms of greenhouse gas reduction, and disclosure practices which is measured in terms of environmental disclosure score. It uses the dynamic panel data regression analysis technique to estimate the parameters. The empirical outcomes show an obvious non-linear impact of carbon performance on corporate financial performance, which is proxied by Tobin’s Q. This indicates that at the initial stage, carbon performance decreases financial performance, but later on, further increase in the carbon performance is found to improve corporates financial performance in the long duration. But, in case of disclosure practices it shows no effect on market-based economic performance, i.e., Tobin’s Q. Therefore, the study recommends the investors to be courageous and patience because carbon performance will decrease financial performance at the lower level, but can give benefits in the long run. This paper also suggests the regulators to incorporate environmental standards, and introduce severe forfeits for ecological wrongdoers with the aim of enhancing companies’ environmental disclosure activities.

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Acknowledgements

The first and second author, Suchismita Ghosh and Ritu Pareek are the recipients of ICSSR (Indian Council of Social Science Research) Doctoral Research Fellowship. The authors acknowledge the ICSSR for conducting the research. The paper has been presented at ICSG Conference 2022.The current manuscript is a revised and improvised version of the paper as per the suggestions of Conference reviewers. We thank the ICSG Conference 2022 organisers of Indian Institute of Management Bodhgaya.

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  1. Department of Commerce, Vidyasagar University, Midnapore, West Bengal, 721102, India

    Suchismita Ghosh, Ritu Pareek & Tarak Nath Sahu

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Ghosh, S., Pareek, R. & Sahu, T.N. Do Carbon Performance and Disclosure Practices Effect Companies’ Financial Performance: A Non-Linear Perspective. Asia-Pac Financ Markets (2023). https://doi.org/10.1007/s10690-023-09428-5

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