The Impact of Climate Change on Financial Efficiency and The Financing Choices of Electricity Industrial Companies: Evidence from Vietnam

Huu Tuan Nguyen and Duy Suu Nguyen
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Huu Tuan Nguyen: SSI Securities Corporation
Duy Suu Nguyen: Faculty of Accounting, Ton Duc Thang University (TDTU), Ho Chi Minh City, Vietnam

Advances in Decision Sciences, 2024, vol. 28, issue 1, 47-74

Abstract: [Purpose] This study examines the ‘climate-finance paradox’ in Vietnam’s electricity sector, focusing on how the paradoxical forces of physical climate risks and economic incentives for carbon-intensive growth influence the firms’ financial policies. Our research contributes to Decision Sciences by examining the trade-offs and decision-making strategies that firms use to navigate the conflicting environmental and economic objectives under uncertainty. [Design/Methodology/Approach] We employ a fixed-effects two-way panel regression model using data from 40 Vietnamese power companies spanning 2003–2022, capturing both physical and transition risk dimensions. [Findings] Physical climate risks (rising temperatures and natural disasters) significantly impair financial health, reducing profitability and long-term debt while increasing short-term debt and precautionary cash holdings. In contrast, higher greenhouse gas emissions (indicating intensive economic activity) correlate with improved financial performance, enhanced long-term debt capacity, and reduced cash hoarding. This reveals a fundamental conflict between climate risk mitigation and the incentives for short-term economic growth. [Research Limitations/Implications] The paradox highlights a market failure in which short-term financial signals reward activities that undermine long-term sustainability. For academics, this necessitates theoretical models that incorporate the conflicting dynamics between climate and economy in emerging markets. [Practical Implications] Managers and investors must recognize emission-linked financial performance as a misleading indicator of long-term value, while policymakers require interventions (e.g., carbon pricing, green financing) to realign corporate incentives with climate objectives. [Originality/Value] This is the first empirical study on the climate-finance paradox in Vietnam’s electricity sector, revealing how physical climate risks and emission-intensive growth simultaneously influence corporate financial policies. Our analysis establishes boundary conditions for mainstream climate finance theories in emerging economies with high climate vulnerability and rapid industrialization, utilizing a unique 20-year panel dataset that captures previously unexamined dual risk dimensions in Vietnam.

Keywords: Corporate Finance; financing choice; climate change; Energy; Environmental Impact; Vietnam (search for similar items in EconPapers)
JEL-codes: G32 Q40 Q54 (search for similar items in EconPapers)
Date: 2024
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