Vol. 11 No. 2 (2023): Business & Management Studies: An International Journal
Articles

Does the stock market provide enough incentives for companies to drive carbon reduction behaviour?

PDF
  • Shou-Lin Yang,
  • Yen-Hsun Chen,
  • Chung-Hsing Yeh,
  • Tsai-Chen Chang,
  • Tzu-Cin Shu
Shou-Lin Yang
Associate Professor, National Kaohsiung University of Science and Technology, Kaohsiung, Taiwan (R.O.C.),
Yen-Hsun Chen
Associate Professor, Far East University, Tainan, Taiwan (R.O.C.)
Chung-Hsing Yeh
Associate Professor, Far Da-Yeh University, Changhua, Taiwan (R.O.C.)
Tsai-Chen Chang
Ph.D. Student, National Kaohsiung University of Science and Technology, Kaohsiung, Taiwan (R.O.C.)
Tzu-Cin Shu
Associate Professor, Hubei Polytechnic University, Hubei, China
DOI: https://doi.org/10.15295/bmij.v11i2.2198

Published 2023-06-26

Keywords

  • Carbon Reduction, Market Reaction, Event Study
  • Karbon Azaltma, Piyasa Tepkisi, Vaka Çalışması

How to Cite

Yang, S.-L., Chen, Y.-H., Yeh, C.-H., Chang, T.-C., & Shu, T.-C. (2023). Does the stock market provide enough incentives for companies to drive carbon reduction behaviour?. Business & Management Studies: An International Journal, 11(2), 435–450. https://doi.org/10.15295/bmij.v11i2.2198

Copyright (c) 2023 Shou-Lin Yang- Yen-Hsun Chen- Chung-Hsing Yeh- Tsai-Chen Chang- Tzu-Cin Shu

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Abstract

This study observes abnormal returns of stock prices after companies announced the establishment of wastewater and waste heat recovery systems in East Asia from 2000 to 2018. The capital expenditure on the wastewater and waste heat recovery system and the expected impact on revenue are also considered, and the stock market is analyzed to verify whether there is an additional evaluation after the company carries out such carbon emission reduction activity. The study finds that after more than a decade of technological advancement and promoting carbon reduction behaviours, the market has shown more positive reactions to carbon reduction measures, such as wastewater and waste heat recovery systems. However, the additional positive reaction in the markets of developing countries is lower than in developed countries. For developing countries desiring domestic manufacturers to adopt more carbon emission reduction activities, the government may need to offer more policy incentives, which will encourage investors in the market to support manufacturers in actively investing in carbon reduction measures. Certainly, manufacturers will be more motivated to implement or cooperate with voluntary carbon reduction measures. In addition, this study does not consider the possible impact of carbon rights trading and carbon fees on improving manufacturers' active treatment of wastewater and waste heat recovery, which will be a direction worthy of future research.

PDF

Downloads

Download data is not yet available.

References

  1. Abu Zayyad, H. M., Obeidat, Z. M., Alshurideh, M. T., Abuhashesh, M., Maqableh, M., & Masa’deh, R.
  2. E. (2021). Corporate social responsibility and patronage intentions: The mediating effect of brand credibility. Journal of Marketing Communications, 27(5), 510–533.
  3. Ball, R., & Brown, P. (1968). An empirical evaluation of accounting income numbers. Journal of Accounting Research, 6, 159–77.
  4. Barnett, M. L., Henriques, I., & Husted, B. W. (2020). Beyond good intentions: Designing CSR initiatives for greater social impact. Journal of Management, 46(6), 937–964.
  5. Brown, S. J., & Warner, J. B. (1980). Measuring security price performance. Journal of Financial Economics, 8(3), 205–258.
  6. Brown, S. J., & Warner, J. B. (1985). Using daily stock returns: The case of event studies. Journal of Financial Economics, 14(1), 3–31.
  7. Brown, T. J., & Dacin, P. A. (1997). The company and the product: Corporate associations and consumer product responses. Journal of Marketing, 61, 68–84.
  8. Bosquet, B. (2000). Environmental tax reform: Does it work? A survey of the empirical evidence.
  9. Ecological Economics, 34(1), 19–32.
  10. Chen, C. M., & Delmas, M. (2011). Measuring corporate social performance: An efficiency perspective.
  11. Production and Operations Management, 20, 789–804.
  12. Chen, J. H., Lai, C. C., & Shieh, J. Y. (2003). Anticipated environmental policy and transitional dynamics in an endogenous growth model. Environmental and Resource Economics, 25(2), 233–254.
  13. Chen, L., Qie, K., Memon, H., & Yesuf, H. M. (2021). The empirical analysis of green innovation for fashion brands, perceived value and green purchase intention—mediating and moderating effects. Sustainability, 13(8), 4238.
  14. Christmann, P. (2000). Effects of ‘best practices’ of environmental management on cost advantage: The role of complementary assets. Academy of Management Journal, 43(4), 66–680.
  15. Corbett, C. J., & Klassen, R. D. (2006). Extending the horizons: Environmental excellence as key to improving operations. Manufacturing & Service Operations Management, 8(1), 5–22.
  16. Creyer, E. H., & Ross, W. T. Jr. (1997). The influence of firm behaviour on purchase intention: Do consumers really care about business ethics? Journal of Consumer Marketing, 14, 419–432.
  17. Fama, E. F., Fisher, L., Jensen, M., & Roll, R. (1969). The adjustment of stock prices to new information.
  18. International Economic Review, 10, 1–21.
  19. Fullerton, D., & Kim, R. S. (2008). Environmental investment and policy with distortionary taxes, and endogenous growth. Journal of Environmental Economics and Management, 56(2),141–154.
  20. Glueck, H., & Schleicher, S. P. (1995). Endogenous technical progress induced by CO2 reduction policies: Simulation results for Austria. Environmental and Resource Economics, 5(2), 151–163.
  21. Godfrey, P. C. (2005). The relationship between corporate philanthropy and shareholder wealth: A risk management perspective. Academy of Management Review 30(4): 777-798.
  22. Godfrey, P. C., Merrill, C. B., & Hansen, J. M. (2009). The relationship between corporate social responsibility and shareholder value: An empirical test of the risk management hypothesis. Strategic Management Journal, 30(4), 425–445.
  23. Griffin, J. J., & Mahon, J. F. (1997). The corporate social performance and corporate financial performance debate: Twenty-five years of incomparable research. Business and Society, 36, 5–31.
  24. Gupta, M. R., & Barman, T. R. (2009). Fiscal policies, environmental pollution and economic growth.
  25. Economic Modelling, 26(5), 1018–1028.
  26. Hermundsdottir, F., & Aspelund, A. (2021. Sustainability innovations and firm competitiveness: A review. Journal of Cleaner Production, 280, 124715.
  27. Horváthová, E. (2010). Does environmental performance affect financial performance? A meta-analysis.
  28. Ecological Economics, 70, 52–59.
  29. Jacobs, W. B., & Singhal, R. V., & Subramanian, R. (2008). An empirical investigation of environmental performance and the market value of the firm. http://ssrn.com/abstract=1320721
  30. Kanter, R., & Brinkerhoff, D. (1981). Organizational performance: Recent developments in measurement.
  31. Annual Review of Sociology, 7, 321–349.
  32. King, A., & Lenox, M. (2002). Exploring the locus of profitable pollution reduction. Management Science, 48(2), 289–299.
  33. Klassen, R. D., & Whybark, D. C. (1999). The impact of environmental technologies on manufacturing performance. Academy of Management Journal, 42(6), 599–615.
  34. Koeppl, A., Kratena, K., Pichl, C., Schebeck, F., Schleicher, S., & Wueger, M. (1996). Macroeconomic and sectoral effects of energy taxation in Austria. Environmental and Resource Economics, 8(4), 417–430.
  35. Liao, P. C., Shih, Y. N., Wu, C. L., Zhang, X. L., & Wang, Y. (2018). Does corporate social performance pay back quickly? A longitudinal content analysis on international contractors. Journal of Cleaner Production, 170, 1328–1337.
  36. McEvoy, D. M., & Stranlund, J. K. (2010). Costly enforcement of voluntary environmental agreements. Environmental and Resource Economics, 47(1), 45–63.
  37. McWilliams, A., & Siegel, D. (2001). Corporate social responsibility: A theory of the firm perspective. Academy of Management Review, 26(1), 117–127.
  38. Osang, T., & Pereira, A. (1996). Import tariffs and growth in a small open economy. Journal of Public Economics, 60, 45–71.
  39. Palmer, K., Oates, W. E., & Portney, P. R. (1995). Tightening environmental standards: The benefit-cost or the no-cost paradigm? Journal of Economic Perspectives, 9(4), 119–132.
  40. Parry, I. W. H., & Bento, A. M. (2000). Tax deductions, environmental policy, and the ‘double dividend’ hypothesis. Journal of Environmental Economics and Management, 39, 67–96.
  41. Peloza, J. (2006). Using corporate social responsibility as insurance for financial performance. California Management Review, 48, 52–72.
  42. Peterson, P. P. (1989). Event study: A review of issues and methodology. Quarterly Journal of Business and Economics, 28, 36–66.
  43. Scott, R. (1995). Institutions and organizations. Sage Publications.
  44. Sen, S., & Bhattacharya, C. B. (2001). Does doing good always lead to doing better? Consumer reactions to corporate social responsibility. Journal of Marketing Research, 38(2), 225–243.
  45. Shane, P. B., & Spicer, B. H. (1983). Market response to environmental information produced outside the firm. The Accounting Review, LVIII, 521–538.
  46. Shen, Y., Su, Z. W., Huang, G., Khalid, F., Farooq, M. B., & Akram, R. (2020). Firm market value relevance of carbon reduction targets, external carbon assurance and carbon communication. Carbon Management, 11(6): 549–563.
  47. Shiu, S. M., & Yang, S. L. (2017). Does engagement in corporate social responsibility provide insurance- like effects? Strategic Management Journal, 38(2), 455–470.
  48. Singh, K., & Misra, M. (2021). Linking corporate social responsibility (CSR) and organizational performance: The moderating effect of corporate reputation. European Research on Management and Business Economics, 27(1), 100139.
  49. Sinkin, C., Wright, C. J., & Burnett, R. D. (2008). Eco‐efficiency and firm value. Journal of Accounting and Public Policy, 27, 167–176.
  50. Smulders, S., & Gradus, R. (1996). Pollution abatement and long-term growth. European Journal of Political Economy, 12(3), 505–532.
  51. Walde, K., & Wood, C. (2004). The empirics of trade and growth: Where are the policy recommendations? International Economics and Economic Policy, 1, 275–292.
  52. Walley, N., & Whitehead, B. (1994). It’s not easy being green. Harvard Business Review, May–June, 46– 52. Wilcox, R. (2003). Applying contemporary statistical techniques. Academic Press.
  53. Xie, X., Huo, J., & Zou, H. (2019). Green process innovation, green product innovation, and corporate financial performance: A content analysis method. Journal of Business Research 101: 697-706).
  54. Yang, S. L., Wu, P. I., & Lee, C. I. (2015). Will economic growth of a country be impeded by more corporate environmental performances? Environmental Economics, 6(1), 44–52.
  55. Zhou, P., & Wen, W. (2020). Carbon-constrained firm decisions: From business strategies to operations modeling. European Journal of Operational Research, 281(1), 1–15.