The Value Relevance of Corporate Investment in Carbon Abatement: The Influence of National Climate Policy

Rong He, Le Luo, Abul Shamsuddin () and Qingliang Tang

European Accounting Review, 2022, vol. 31, issue 5, 1233-1261

Abstract: Although the literature on carbon accounting is growing, studies on the valuation impact of firms’ carbon abatement investment (CAI) are scarce, and the influence of country-specific climate policies is largely underexplored. Drawing on both the benefit and cost perspectives of the resource-based view, we predict that investors’ perceptions of the net benefits of CAI are contingent on national climate policies. Based on a comparative analysis of data from the US, the UK, and Australia, we find that CAI is viewed as value-destroying by investors in countries that do not have a stringent climate change policy. In contrast, CAI enhances firm value in jurisdictions that implement such policies. Additional analyses show that investors also consider the characteristics of CAI (i.e., the size and payback period) and the act and extensiveness of voluntary CAI disclosure when evaluating firm value. Our findings fill important gaps in the literature and have critical implications for policymakers, investors, managers, and other stakeholders who are responsible for the transition to a carbon-neutral economy.

Date: 2022
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DOI: 10.1080/09638180.2021.1916979

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