 Do investors care about carbon emissions under the European Environmental Policy?Houdou Basse Mama and Rahel Mandaroux Business Strategy and the Environment, 2022, vol. 31, issue 1, 268-283 Abstract: We explore the extent to which cross‐sectional differences in carbon dioxide emissions matter for future valuations of European firms regulated under the European Union Trading Scheme (EU ETS). Counterintuitively, we find that firm‐level emissions share a robust concave relationship with future market valuations. Initially, market valuations increase in emissions potentially because emissions are considered essential for normal production processes; however, the valuation premium decreases and becomes negative beyond a threshold of emissions due to looming regulatory and transition risks. Firms in the lower quartile of emissions trade at an average premium of 2.42%, against a 20.78% discount in the upper quartile (the peak is 3.85%). Importantly, the concave relationship obtains only in smaller firms with lower analyst coverage and lower institutional ownership, and the predictive power of emissions is limited to firms with no reported investments in clean technology. Therefore, policymakers might consider promoting the development and diffusion of green technologies. Date: 2022 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bla:bstrat:v:31:y:2022:i:1:p:268-283 Ordering information: This journal article can be ordered from Access Statistics for this article Business Strategy and the Environment is currently edited by Richard Welford More articles in Business Strategy and the Environment from Wiley Blackwell |
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