Marcellin Makpotche, Kais Bouslah and Bouchra B. M’Zali
The intensity of carbon emissions has led to the serious problem of global warming, and the consequences in terms of climatic disasters are gaining increasing attention worldwide…
Abstract
Purpose
The intensity of carbon emissions has led to the serious problem of global warming, and the consequences in terms of climatic disasters are gaining increasing attention worldwide. As the energy sector is responsible for most global emissions, developing clean energy is crucial to combat climate change. This study aims to examine the relationship between corporate governance and renewable energy (RE) consumption and explore the interaction between RE production and RE use.
Design/methodology/approach
The study adopts an econometric framework of a panel model, followed by the robustness check using alternative methods, including logit regressions. The bivariate probit model is used to analyze the interaction between the decision to use and the decision to produce RE. The analysis is based on a sample of 3,896 firms covering 45 countries worldwide.
Findings
The results reveal that appropriate governance mechanisms positively impact RE consumption. These include the existence of a sustainability committee; environmental, social and governance-based compensation policy; financial performance-based compensation; sustainability external audit; transparency; board gender diversity; and board independence. Firms with appropriate governance mechanisms are more likely to produce and use RE than others. Finally, while RE use positively impacts firm value and environmental performance, the authors find no significant effect on current profitability.
Originality/value
This study goes beyond previous research by exploring the impact of multiple governance mechanisms. To the best of the authors’ knowledge, this is also the first study examining the relationship between RE use and firm value. Overall, the findings suggest that RE transition requires, first of all, establishing appropriate governance mechanisms within companies.
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Marcellin Makpotche, Kais Bouslah and Bouchra M'Zali
This paper aims to investigate the long-run financial and environmental performance of corporate green bond issuers, worldwide.
Abstract
Purpose
This paper aims to investigate the long-run financial and environmental performance of corporate green bond issuers, worldwide.
Design/methodology/approach
The data includes 259 corporate green bond issuers from 2013 to 2020. The authors adopt the matching approach, using the nearest neighbor method to select the control firms. The event-time approach is used to examine corporate green bond issuers’ long-run stock market performance, and robustness tests are conducted using the calendar-time method. The authors examine green bond issuers’ long-run environmental performance and carbon dioxide (CO2) emissions using difference-in-differences estimations.
Findings
In contrast with the earlier long-run event studies, our results reveal that multiple-time issuers, and issuers operating in industries where the natural environment is financially material, perform financially in the long term relative to the control firms. The authors also document that corporate green bond issuers reduce their CO2 emissions, and improve their resource use efficiency and environmental performance, in the long run.
Originality/value
To the authors’ knowledge, this is the first study that looks at the long-run effect of corporate green bond issuance on firms’ stock market performance. It has the particularity to document that corporate green bond issuance is beneficial for investors and positively affects the environment. Our findings help us understand that firms do not issue green bonds for greenwashing.
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Abdelmajid Hmaittane, Kais Bouslah and Bouchra M’Zali
This paper aims to examine whether corporate social responsibility influences the cost of equity capital of firms operating in controversial industry sectors.
Abstract
Purpose
This paper aims to examine whether corporate social responsibility influences the cost of equity capital of firms operating in controversial industry sectors.
Design/methodology/approach
This paper computes the ex-ante cost of equity capital implied in analyst earnings forecasts and stock prices for a sample of 2,006 US firm-year observations belonging to controversial industry sectors (alcohol, tobacco, gambling, military, firearms, nuclear power, oil and gas, cement and biotechnology) during the period 1991-2012. The baseline regression model links CSR score to the implied cost of equity capital (ICC) and controls for firm-specific characteristics, industry factors and economic or market-wide factors. This model enables to capture the differential effect of CSR on ICC when the firm belongs to a specific sector of the controversial industries by adding an interaction term between CSR and the dummy variable representing this belonging.
Findings
The findings show two main results. First, CSR engagement significantly reduces the implied cost of equity capital (ICC) in all controversial industry sectors, taken as a group, as well as in each one of these sectors individually. Second, this effect is more pronounced when the firm belongs to the alcohol and tobacco industry sectors.
Practical implications
The findings have two important practical implications. First, they should increase managers’ confidence and incentives, in controversial industry sectors, to pursue CSR activities. Second, policymakers can encourage managers to undertake CSR initiatives in controversial industry sectors through tax incentives (e.g. reduce taxes for CSR related investment projects).
Originality/value
This paper extends prior studies that investigate the perceptions of capital market participants of firm’s CSR commitment (Sharfman and Fernando, 2008; Goss and Roberts, 2011; El Ghoul et al., 2011; Jo and Na, 2012; Bouslah et al., 2013) by examining the effect of CSR on ICC in the controversial industry sectors. It contributes to the debate around the relevance of CSR in controversial sectors by providing evidence of the reduction effect of CSR activities on ICC in controversial industries and by showing that this reduction impact is more pronounced when the firm belongs to alcohol, tobacco industry sectors.
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Marcellin Makpotche, Kais Bouslah and Bouchra M’Zali
This study aims to exploit Tobin’s Q model of investment to examine the relationship between corporate governance and green innovation.
Abstract
Purpose
This study aims to exploit Tobin’s Q model of investment to examine the relationship between corporate governance and green innovation.
Design/methodology/approach
The study is based on a sample of 3,896 firms from 2002 to 2021, covering 45 countries worldwide. The authors adopt Tobin’s Q model to conceptualize the relationship between corporate governance and investment in green research and development (R&D). The authors argue that agency costs and financial market frictions affect corporate investment and are fundamental factors in R&D activities. By limiting agency conflicts, effective governance favors efficiency, facilitates access to external financing and encourages green innovation. The authors analyzed the causal effect by using the system-generalized method of moments (system-GMM).
Findings
The results reveal that the better the corporate governance, the more the firm invests in green R&D. A 1%-point increase in the corporate governance ratings leads to an increase in green R&D expenses to the total asset ratio of about 0.77 percentage points. In addition, an increase in the score of each dimension (strategy, management and shareholder) of corporate governance results in an increase in the probability of green product innovation. Finally, green innovation is positively related to firm environmental performance, including emission reduction and resource use efficiency.
Practical implications
The findings provide implications to support managers and policymakers on how to improve sustainability through corporate governance. Governance mechanisms will help resolve agency problems and, in turn, encourage green innovation.
Social implications
Understanding the impact of corporate governance on green innovation may help firms combat climate change, a crucial societal concern. The present study helps achieve one of the precious UN’s sustainable development goals: Goal 13 on climate action.
Originality/value
This study goes beyond previous research by adopting Tobin’s Q model to examine the relationship between corporate governance and green R&D investment. Overall, the results suggest that effective corporate governance is necessary for environmental efficiency.