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

Author

Listed:
  • Suchismita Ghosh

    (Vidyasagar University)

  • Ritu Pareek

    (Vidyasagar University)

  • Tarak Nath Sahu

    (Vidyasagar University)

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.

Suggested Citation

  • Suchismita Ghosh & Ritu Pareek & Tarak Nath Sahu, 2024. "Do Carbon Performance and Disclosure Practices Effect Companies’ Financial Performance: A Non-Linear Perspective," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 31(3), pages 733-754, September.
  • Handle: RePEc:kap:apfinm:v:31:y:2024:i:3:d:10.1007_s10690-023-09428-5
    DOI: 10.1007/s10690-023-09428-5
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    More about this item

    Keywords

    Carbon performance; Disclosure practices; National stock exchange; Dynamic panel data analysis; Financial performance; Non-linear relationship;
    All these keywords.

    JEL classification:

    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models

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