EXAMINING THE RELATION BETWEEN MARKET VALUE AND CO2 EMISSION: STUDY OF INDIAN FIRMS

Abstract

In the present era, sustainable business practices have become an important metric for measuring the organisational effectiveness. Shareholders have added sustainability as an important dimension of firms’ performance and consider it as value relevant for determining the market value of any company. Given the premises, present study examines the impact of CO2 emission on the market value of the firm (measured by market-to-book value ratio and Tobin’s Q ratio) in the context of a developing country. Current study is based on panel data of 230 firm-year observations collected from the annual report of Carbon Disclosure Project (CDP) and annual report of sample companies. Using panel least square regression analysis, the findings indicate significant adverse impact of CO2 emission on the firm value. In other words, shareholders assign negative value to higher discharge of carbon dioxide and reflect the same by lowering the market value of shares. Further, the results are checked for robustness using generalised method of moments (GMM) and the conclusions are found coinciding. Present findings have important implications for regulatory authorities, policy makers, and practicing managers.