Carbon risk and firm performance: Evidence from a quasi-natural experiment. Issue 1 (February 2018)

• Record Type: Journal Article
• Authors: Nguyen, Justin Hung
• Is Part Of: Australian journal of management. Volume 43:Issue 1(2018)
• Page Start: 65
• Page End: 90
• Publication Date: 2018-02
• Subjects: Carbon policy -- carbon risk -- difference-in-differences -- financial constraint -- financial performance -- quasi-natural experiment; G30 -- Q51 -- Q58; Management -- Periodicals; Management -- Australia -- Periodicals; Business enterprises -- Finance -- Periodicals; Industrial management -- Australia -- Periodicals; 330
• DOI: 10.1177/0312896217709328
• Languages: English
• ISSNs: 0312-8962

Abstract

This article examines the effect of carbon risk on firm performance, exploiting the Australia ratification of Kyoto Protocol in December 2007 as an exogenous shock. The article finds that polluters, firms in highest-emitting industries, experience a reduction in financial performance relative to controlling non-polluters subsequent to the ratification, and the effect is more pronounced among financially constrained firms. The results are robust to various definitions of polluters, measures of financial constraints, falsification tests on the timing of the Kyoto adoption and the impact of the Global Financial Crisis. The evidence suggests a negative association between carbon risk and firm performance.