Carbon Emissions and Shareholder Value: Causal Evidence from the U.S. Power Utilities

55 Pages Posted: 22 Nov 2022 Last revised: 9 May 2024

See all articles by Mayank Kumar

Mayank Kumar

University of Michigan, Stephen M. Ross School of Business

Amiyatosh Purnanandam

University of Michigan, Stephen M. Ross School of Business

Date Written: November 17, 2022

Abstract

We establish a causal link between carbon emissions and firm performance using the passage of a cap-and-trade policy, the Regional Greenhouse Gas Initiative, for electric utilities in Northeastern and Mid-Atlantic states. The policy was successful in reducing carbon emissions from the affected plants compared to the unaffected ones. The affected firm’s profitability decreased, yet they experienced an increase in market-to-book ratio. Increase in value came from higher expected cash flows and increased demand of the affected firms’ stocks by environmentally focused institutional investors. Our results suggest that managerial focus on short-term profitability can be a significant impediment to carbon-transition.

Keywords: cap-and-trade, carbon emissions, pollution, stakeholder capitalism, shareholder value

JEL Classification: G21, G28

Suggested Citation

Kumar, Mayank and Purnanandam, Amiyatosh, Carbon Emissions and Shareholder Value: Causal Evidence from the U.S. Power Utilities (November 17, 2022). Available at SSRN: https://ssrn.com/abstract=4279945 or http://dx.doi.org/10.2139/ssrn.4279945

Mayank Kumar

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

Amiyatosh Purnanandam (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

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