Does a Carbon Management System Mitigate the Consequences of Carbon Emissions on Firm Value? An International Study

Abstract

Despite carbon emission is perceived as a main contributing factor to potential global climate change and associated future costs and liabilities, very limited research has focused on the value relevance of carbon management system (CMS) in the international context. Obtaining carbon emission and carbon management data from CDP from 2010-2017, we examine whether the adverse impact of carbon emissions on firm value is alleviated by the firms’ CMS. Our findings suggest that the level of carbon emissions is negatively associated with firm value, but a firm’s higher quality CMS weakens this negative relationship. The further analyses show that, the positive moderating effect of CMS is found only in carbon intensive, large, mature, and highly profitable firms. Our results provide potentially useful implications to corporate managers and outside stakeholders who are concerned about risks associated with carbon emissions and the financial implications of a firm’s CMS.