Carbon Management System Quality and Corporate Financial Performance

Pramila Shrestha, Bobae Choi and Le Luo
Additional contact information
Pramila Shrestha: Newcastle Business School, University of Newcastle, Hunter St & Auckland St, Newcastle NSW 2300, Australia
Bobae Choi: Newcastle Business School, University of Newcastle, Hunter St & Auckland St, Newcastle NSW 2300, Australia
Le Luo: Macquarie Business School, Macquarie University, Balaclava Rd, Macquarie Park NSW 2109, Australia

The International Journal of Accounting (TIJA), 2023, vol. 58, issue 01, 1-52

Abstract: SynopsisThe research problemThis study examines the relationship between carbon management system quality and firm performance and investigates the mechanisms through which a carbon management system relates to firm performance.Motivation or theoretical reasoningDespite growing attention from academia and practice on carbon accounting in recent years, little is known about firms’ strategic implementation of carbon management systems and their impact on firms’ financial outcomes. Drawing on the resource-based view and institutional theory, this study argues that carbon management system implementation can create competitive advantages for firms through product differentiation and cost leadership. However, adopting quality management systems for carbon mitigation can be costly for firms. Additionally, not all firms would achieve such a differentiation advantage through a carbon management system.The test hypothesesH1: There is no relationship between the quality of a carbon management system and firm financial performance.H2: Carbon-intensive sectors have no moderating effect on the relationship between the quality of a carbon management system and firm financial performance.Target populationCorporate managers and stakeholders including investors, international regulators, and standard settees.Adopted methodologyOrdinary least square regressions.AnalysesCorporate financial performance is measured by return on assets, calculated as earnings before extraordinary items divided by total assets at fiscal year-end. Our independent variable of interest is the quality measure of a carbon management system (QCMS). Following Tang and Luo (2014) and Luo and Tang (2016), QCMS is calculated as the average equal weighted sum of the standardized values from the 10 elements of a carbon management system. For additional tests, alternative performance measures (e.g., Tobin’s Q, return on equity, operating return on assets [ROA], and cash flow from operating activities to total assets) and disaggregated ROA components are employed as dependent variables.FindingsWe find that a firm’s carbon management system quality is positively associated with its financial performance. A better-quality carbon management system is especially associated with higher revenues, margins, and R&D expenditures. In addition, individual carbon management system components exhibit heterogeneous influences on financial performance. Specifically, the areas related to carbon disclosure and external carbon assurance have an incremental impact on financial performance. The positive association between a carbon management system and financial performance is stronger for firms operating in carbon-intensive sectors and firms with a higher level of carbon emissions. The carbon regulation affects the sensitivity of financial performance differently in intensive and non-intensive sectors in response to carbon management system quality.

Keywords: Carbon management system (CMS); financial performance; CDP; cross-country study (search for similar items in EconPapers)
JEL-codes: M41 Q56 (search for similar items in EconPapers)
Date: 2023
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S1094406023500014
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:tijaxx:v:58:y:2023:i:01:n:s1094406023500014

Ordering information: This journal article can be ordered from

DOI: 10.1142/S1094406023500014

Access Statistics for this article

The International Journal of Accounting (TIJA) is currently edited by A. Rashad Abdel-khalik

More articles in The International Journal of Accounting (TIJA) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().