Do stock markets value green operations? Evidence from India

Abstract

PurposeThis study aims to examine the impact of green operation (measured using the energy intensity of its operations) on the value of corporate firms in stock markets. The authors also examine the channel of such an impact and its implication on a firm's financing choices.Design/methodology/approachThe authors conduct various univariate and multivariate regression analyses on a panel of all non-financial Indian firms listed on the National Stock Exchange from 2010 through 2018. The authors use the sensitivity of investments to the cash flows model to test the financial constraints hypothesis.FindingsThe authors’ analysis shows a positive relationship between energy efficiency (firms that consume a lesser amount of energy per unit of sale) and the value of firms in the stock market. The authors empirically attribute this greater valuation to the lesser volatility of stock returns, measured by the standard deviation of daily stock returns. Finally, the authors observe that investments in energy-efficient firms are less sensitive to their internal cash flows.Practical implicationsThe results suggest that less green firms face greater constraints in accessing finance from external sources and, therefore, depend more on internal than external capital to finance their investments. Hence, managers of such firms can ease their financing pressures by making their operations greener.Originality/valueIn this study, the authors examine the implications of green operations on the financing choices of firms. This aspect of going green is important because managers will have enough incentives to invest in green technologies as that would increase their access to external finance and, hence, decrease their financial constraints.

Impact of crude oil volatility jumps on sustainable investments: Evidence from India

“…Applying the autoregressive distributed lag (ARDL) process, Sharma et al (2021) document that prices of green stocks are sensitive to a number of macroeconomic variables, including industrial production, wholesale price index, economy money supply, crude oil prices, and real effective exchange rate. More recently, Jadiyappa and Krishnankutty (2022) analyzed the effects of green operations (measured using the energy intensity of its operations) on the value of corporate firms in stock markets. The study reports a positive association between energy efficiency (firms that consume less energy per unit of sale) and stock returns.…”

“…However, despite the growing interest in sustainable investing in India, the literature on green assets is rather scarce. Notable contributions include Tiwari et al (2018), Dutta, Bouri, Dutta et al (2021), Sharma et al (2021), Shanmugam et al (2022), and Jadiyappa and Krishnankutty (2022). For instance, Tiwari et al (2018) find that green sectors react significantly to asymmetric oil price impacts.…”

Nexus between mandatory ESG disclosure regulation and abnormal stock returns: a study of an emerging economy

“…Furthermore, empirical studies have also provided mixed results in this area (Wong et al , 2021; Aydoğmuş et al , 2022) which makes managers skeptical about the adoption of ESG-related disclosures. The distinctive financial and legal framework of the country is partly responsible for such inconsistent results (Jadiyappa and Krishnankutty, 2022). Though research on ESG and firm value has grown significantly, several gaps require further probing.…”

ESG and share price volatility in energy sector firms: does the development phase of countries matter?

“…The sector, therefore, remains controversial due to its adverse impacts on the environment compared to other sectors (Shakil, 2021). Second, the industry remains under incessant regulatory pressure and investors' vigilance for its actions and operations (Jadiyappa and Krishnankutty, 2022). The regulatory environment differs for developing and developed nations, which may cause a notable difference in ESG adoption and adherence by firms concerning country-specific factors (Singhania and Saini, 2022).…”