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The Impact of Climate Change on Financial Efficiency and The Financing Choices of Electricity Industrial Companies: Evidence from Vietnam

Author

Listed:
  • Huu Tuan Nguyen

    (SSI Securities Corporation)

  • Duy Suu Nguyen

    (Faculty of Accounting, Ton Duc Thang University (TDTU), Ho Chi Minh City, Vietnam)

Abstract

[Purpose] This study investigated the impact of climate change on the performance and financing choices of Vietnamese industrial electricity companies. [Design/methodology/approach] The sample included panel data on 40 listed power companies in Vietnam between 2003 and 2022. The fixed-effect two-ways regression model is used to estimate the effect of intrinsic characteristics of individuals in a panel data. [Findings] The study found that the energy industry, increasing temperature, rainfall, and the frequency of natural disasters reduced financial efficiency, decreased working capital, reduced the use of long-term debt, increased short-term debt, and increased cash holdings. Notwithstanding, we find that an increase in greenhouse gas emissions appears to be associated with outcomes in a somewhat opposite direction for these industries: an increase in financial efficiency, an increase in the use of long-term debt, a reduction in short-term debt, an increase in working capital, and a reduction in cash holdings. [Research limitations/implications] This study has certain limitations that need to be recognised and addressed, such as allowing for a more realistic assessment of the direct and indirect investment capital in the energy sector. Financial institutions should also be added to the sample so as to provide additional input to the evaluation of the financial performance and funding policies of the energy enterprises. [Practical implications] Reducing greenhouse gas emissions is an important responsibility of companies with high greenhouse gas emissions, such as the energy and electricity industries. Therefore, companies in these industries are called on to increase their investment in environmentally friendly power generation technologies, such as biomass, wind, and solar power, or improve the wastewater treatment technology of thermal power plants. Our natural forest area has been reduced due to the construction of hydroelectric dams. [Originality/value] Our findings provide empirical evidence of the impact of climate change on the financial performance and choice of industrial electricity companies listed on the Vietnamese stock market.

Suggested Citation

  • Huu Tuan Nguyen & Duy Suu Nguyen, 2024. "The Impact of Climate Change on Financial Efficiency and The Financing Choices of Electricity Industrial Companies: Evidence from Vietnam," Advances in Decision Sciences, Asia University, Taiwan, vol. 28(1), pages 47-74, March.
    • Handle: RePEc:aag:wpaper:v:28:y:2024:i:1:p:47-74
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    References listed on IDEAS

    as
    1. Alex Bowen & Sarah Cochrane & Samuel Fankhauser, 2012. "Climate change, adaptation and economic growth," Climatic Change, Springer, vol. 113(2), pages 95-106, July.
    2. Le Ngoc Thuy Trang & Do Thi Thanh Nhan & Dung Nguyen Thi Phuong & Wing-Keung Wong, 2022. "The Effects Of Selected Financial Ratios On Profitability: An Empirical Analysis Of Real Estate Firms In Vietnam," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 17(01), pages 1-29, March.
    3. Francisco Pérez-González & Hayong Yun, 2013. "Risk Management and Firm Value: Evidence from Weather Derivatives," Journal of Finance, American Finance Association, vol. 68(5), pages 2143-2176, October.
    4. Lingyun He & Chen Wu & Xiaolei Yang & Jiao Liu, 2019. "Corporate social responsibility, green credit, and corporate performance: an empirical analysis based on the mining, power, and steel industries of China," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 95(1), pages 73-89, January.
    5. Karpoff, Jonathan M & Lott, John R, Jr & Wehrly, Eric W, 2005. "The Reputational Penalties for Environmental Violations: Empirical Evidence," Journal of Law and Economics, University of Chicago Press, vol. 48(2), pages 653-675, October.
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    7. Yi Zhou & Jiapeng Dai & Umar Farooq & Jaleel Ahmed & Klunko Natalia Sergeevna, 2023. "National Culture as a Determinant of Corporate Capital Structure: Empirical Evidence from Three Emerging Economies," Advances in Decision Sciences, Asia University, Taiwan, vol. 27(2), pages 122-144, June.
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    More about this item

    Keywords

    Corporate Finance; financing choice; climate change; Energy; Environmental Impact; Vietnam;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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