Carbon Firm Devaluation and Green Actions

Abstract

Using global evidence, we show that high-emission firms have lower price valuation ratios than low-emission firms in the same country, especially in recent years. The price gap coincides with heightened climate awareness following local natural disasters. In the presence of equity price pressure, high-emission firms reduce carbon emission levels, increase green innovation activities, and downsize operations. An instrumental variable approach, in which high-emission firms' price valuation is instrumented by local natural disasters, suggests that the effect on firms' actions is causal. Our findings are unlikely driven by tighter environmental regulations, as private high-emission firms do not show the same results.

Keywords: Price Valuation, Carbon Emissions, Green Innovation, Climate Awareness, Equity Market

JEL Classification: D83, G11, G15, G23, Q54