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The impact of carbon awareness, country-governance, and innovation on the cost of equity: Evidence from oil and gas firms

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  • Nasrallah, Nohade
  • El Khoury, Rim
  • Atayah, Osama F.
  • Marashdeh, Hazem
  • Najaf, Khakan

Abstract

The present paper explores the impact of carbon awareness on the cost of equity (COE) with a keen focus on the influence of country governance and innovation factors. Drawing on Bloomberg data spanning from 2011 to 2022, our analysis encompasses 263 firms within the Oil and Gas sector across 50 countries, culminating in 2122 annual observations. Through the employment of a comprehensive suite of regression analyses—including median regression, M-estimator regression, and MM-estimator regression, alongside Firm-Fixed Effect and Reverse Causality Models—we uncover a consistently negative association between carbon awareness and COE. Our investigation further assesses the effect of country-level governance on COE, revealing a universally negative correlation. Among governance indicators, regulatory quality emerges as a particularly significant factor. Similarly, we observe a consistent negative relationship between country-level innovation and COE, reinforcing the significance of national innovation capabilities in financial performance metrics. These findings remain robust across a range of tests, underscoring their reliability and relevance. The study is important for policymakers, investors, managers, and strategic environmentalists.

Suggested Citation

  • Nasrallah, Nohade & El Khoury, Rim & Atayah, Osama F. & Marashdeh, Hazem & Najaf, Khakan, 2025. "The impact of carbon awareness, country-governance, and innovation on the cost of equity: Evidence from oil and gas firms," Research in International Business and Finance, Elsevier, vol. 73(PB).
    • Handle: RePEc:eee:riibaf:v:73:y:2025:i:pb:s0275531924004331
    DOI: 10.1016/j.ribaf.2024.102640
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    Keywords

    Carbon awareness; Cost of equity; Oil and gas firms; Governance index; Innovation index;
    All these keywords.

    JEL classification:

    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation

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