The Relationship Between CO2 Emission Reductions and Firm Value: An Empirical Analysis of Chinese Listed High Polluting and Low Polluting Companies

Abstract

Although the growth rate of global carbon emissions has slowed down, the overall carbon emissions will further increase. As the world's largest CO2 emitter, the Chinese government promises to reduce over 65% in 2030 from the 2005 level. Past research has focused on the impact of carbon disclosure on firm value which mainly focuses on information disclosure, however, research on whether CO2 emission reductions affect firm values are limited and the results are inconclusive. This paper contributes by examining the relationship between CO2 emission reductions and firm value in the context of China. We collect data from the Shanghai stock exchange and Shenzhen stock exchange from 2019-2021 and 870 observations are examined. Companies are divided into high polluting and low polluting to examine the relationship more specifically. The relationship is examined by OLS regression. The results obtained show that CO2 emission reductions have an impact on firm value. For high polluting companies with large CO2 emissions, reduction increase firm value. However, for high polluting companies with comparatively less CO2 emissions which indicate those companies has already taken action in previous years, reduction in CO2 decrease firm value. As regards the impact of CO2 emission reductions on low polluting companies’ value, our results show there is no relationship between CO2 emission reductions and firm value