- Title
- The value relevance of corporate carbon abatement initiatives
- Creator
- He, Rong
- Relation
- University of Newcastle Research Higher Degree Thesis
- Resource Type
- thesis
- Date
- 2021
- Description
- Research Doctorate - Doctor of Philosophy (PhD)
- Description
- Climate change is one of the most debated global issues of the past few decades. Corporations are reacting to climate change by adjusting strategies, engaging in carbon management practices and making climate-related disclosures. The evolving carbon accounting literature provides certain insights into corporate carbon practices and the capital market effects of firm carbon emissions, but few studies have examined firms’ commitment to the climate change battle. This thesis attempts to narrow this gap in the literature by investigating the economic consequences of carbon abatement initiatives in two empirical studies. The first empirical study addresses two research questions. The first is whether and how firm investment in carbon abatement initiatives affect firm value. This question is important because the findings will inform corporate managers and investors about the financial implications of firm carbon abatement investment (CAI). Drawing on the resource-based view, it is argued that firm CAI generates benefits to firms but also involves significant costs. The net effect of firm CAI on firm value depends on whether the benefits outweigh the costs or vice versa. Using a sample of companies from the US, the UK and Australia from 2010 to 2016, the first empirical study provides evidence that firm CAI is negatively related to firm value. The finding indicates that investors are concerned about the high costs of CAI. The second research question is whether the valuation effect of firm CAI varies with the carbon policy regimes of the countries in which firms operate. This question is important for policymakers to observe the influence of national climate policies on the perceived value of firm CAI. Using a comparison method, it is found that while firm CAI is viewed as value-destroying by US investors, it enhances firm value in the UK and has no observable valuation effects in Australia. The results indicate that the valuation effect of CAI is dependent on the institutional settings of the firms. The second empirical study of this thesis investigates the moderating effects of country-level climate risks on the relationship between firm CAI and firm value. Climate risk has attracted great attention from capital market regulators, investors and consolation professionals in recent years because of its financial implications for firms and investors. Based on the literature affirming that firm investment in corporate social responsibilities (CSR) and environmental management plays a role in risk management, it is argued that CAI may be a measure taken by firms to manage climate risk. Because the benefits of risk management are more significant when the risk level is high, it is expected that CAI may be less value detrimental in a business environment with higher climate risk. Based on a sample of firms from 24 countries, the results suggest that firms dwelling in countries with a higher level of transitional risk (e.g., regulatory, litigation and reputational risk) tend to undergo less value decrement. However, physical risk does not have the same significant influence. This study enhances the understanding of the valuation of firm CAI and emphasises the importance of considering the country-level climate risk factors when examining the valuation effects. The thesis contributes to the social and environmental accounting literature by empirically testing the value relevance of CAI in various institutional contexts and examining the relationship from a risk management perspective. The study also provides potential implications for policymakers, capital market regulators, accounting standard settings, investors, managers, financial analysts and fund managers.
- Subject
- climate change; carbon ababement initiatives; value relevance; climate risks; climate policy
- Identifier
- http://hdl.handle.net/1959.13/1467607
- Identifier
- uon:47856
- Rights
- Copyright 2021 Rong He
- Language
- eng
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