Firm market value relevance of carbon reduction targets, external carbon assurance and carbon communication

Abstract

This research paper investigates the firm-value effects of the carbon management practices. Moreover, it also aims to respond to the recent calls, so as to investigate the firm value relevance of the carbon management practices. The findings from this study contribute to the literature that is based on the corporate responses to climate change initiatives. Centered on a sample of S&P 500 firms, from the year 2011–2018 (1780 firm-year observations), this study finds that carbon management practices (e.g. carbon reduction targets, external carbon assurance and carbon communication) are positively associated with the market value of equity, or in other words, the market capitalization. Empirical results from the study show that the external carbon assurance contributes an amount of 10% to the market value of the firms, as compared to an amount of 5% and 4% for the carbon targets and the carbon communication, respectively. These findings may assist managers in making informed estimations and judgement regarding the costs and benefit analysis of each of the carbon management practices. Overall, our results are robust enough to alternate the proxies for the firm performance and endogeneities.

Keywords

• carbon management
• carbon reduction targets
• external carbon assurance
• carbon communication
• firm value