Does it pay to be environmentally responsible? Investigating the effect on the weighted average cost of capital

Mariani, Massimo; Pizzutilo, Fabio; Caragnano, Alessandra; Zito, Marianna

doi:10.1002/csr.2164

Cited by 10 publications

(11 citation statements)

References 57 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…The results in column 1 of panel A show that the coefficient of the variable carbon disclosure CD is negatively (−0.0466) and significantly related to the WACC, suggesting that firms disclosing carbon emissions have a lower cost of capital than those that do not disclose this information. Our results support the view that firms reporting their environmental responsibility are rewarded by capital providers by providing them with access to lower‐cost external finance (Lemma et al, 2019; Mariani et al, 2021). The results in column 4 of panel B show that the relationship between CD and the WACC is affected by a firm's NEF.…”

Section: Regressions Resultssupporting

confidence: 85%

“…We follow the previous literature for the selection of control variables and add those most frequently used in our equations (Bui et al, 2020;Francis & Khurana, 2005;Lemma et al, 2019;Mariani et al, 2021). We also include dividend payout (DPOUT) in the WACC Furthermore, the mean values of our proxies of the cost of capital, WACC, COE and COD, are 13%, 16.6%, and 6%, respectively.…”

Section: Methodsmentioning

confidence: 99%

See 1 more Smart Citation

Carbon disclosure policy, external financing needs and the cost of capital: Does financial market quality matter?

2023

View full text Add to dashboard Cite

We investigate whether the quality of financial markets matters for the relationship between net external financing, voluntary carbon disclosure and firms' cost of capital. External financing needs may create incentives for firms to engage in environmental strategies, such as disclosing their carbon emissions in response to demands from stakeholders. In countries with low financial market quality, firms may build a reputation when complying with stakeholders' demands. In these countries, firms disclosing carbon emissions and with high external financing needs may be rewarded with a lower cost of capital. Using an international sample of 24,253 firm‐year observations from 35 countries, we show that the higher firms' net external financing in the previous year, the more likely they are to disclose their carbon emissions in the current year. Moreover, the positive association between the likelihood of carbon disclosure and net external financing needs is stronger in countries with low financial market quality. We further show that disclosing firms with high external financing needs have a lower cost of capital as compared to disclosing firms with low external financing needs. This evidence also differs between countries with high versus low financial market quality.

show abstract

Section: Regressions Resultssupporting

confidence: 85%

Section: Methodsmentioning

confidence: 99%

Carbon disclosure policy, external financing needs and the cost of capital: Does financial market quality matter?

2023

View full text Add to dashboard Cite

show abstract

“…Another strand of studies finds that the implementation of environmentally virtuous practices yields more favorable access to finance (Cheng et al, 2014;Liu et al, 2021;Maaloul, 2018) and generates a lower cost of debt financing (Caragnano et al, 2020;Jung et al, 2018;Pizzutilo et al, 2020) and cost of capital (Mariani et al, 2021;Sharfman & Fernando, 2008). Albuquerque et al (2019) document a statistically and economically significant negative relationship between systematic risk and CSR quality.…”

Section: Social Responsibility and Performancementioning

confidence: 99%

“…Other studies identified positive abnormal for firms with high employee satisfaction (Becker et al, 2022; Edmans et al, 2014; Fauver et al, 2018), customer loyalty (Albuquerque et al, 2019; Luo & Bhattacharya, 2009), and social capital and trust (Fiordelisi et al, 2022; Lins et al, 2017). Another strand of studies finds that the implementation of environmentally virtuous practices yields more favorable access to finance (Cheng et al, 2014; Liu et al, 2021; Maaloul, 2018) and generates a lower cost of debt financing (Caragnano et al, 2020; Jung et al, 2018; Pizzutilo et al, 2020) and cost of capital (Mariani et al, 2021; Sharfman & Fernando, 2008). Albuquerque et al (2019) document a statistically and economically significant negative relationship between systematic risk and CSR quality.…”

Section: Literature Reviewmentioning

confidence: 99%

Portfolio performance implications of investment in renewable energy equities: Green versus gray

Pizzutilo

Gleason

2023

Corp Soc Responsibility Env

Self Cite

View full text Add to dashboard Cite

The Sustainable Development Goals of the United Nation and interest by investors in Environmental, Social and Governance (ESG) investment strategies have caused a rapid shift to the green or renewable energy sector, from traditional or gray (oil, gas, and coal) energy companies. In this study, we examine whether and to what extent, financially speaking, there is a price to pay for investing in renewable energy sector equity. Moreover, we seek to determine whether green investments can be considered a hedge during times of financial stress. We find that alphas from investments in a portfolio of gray (overall energy sector) stocks and versus a portfolio of renewable energy equities during an exogenous, non‐financial shock—the COVID‐19 pandemic—and during non‐crisis periods did not differ statistically. However, the renewable energy index showed higher idiosyncratic volatility than the energy index, as expected. The results are robust to alternative model specifications. From a practical perspective, our results are informative in that they provide insights into the tradeoffs associated with renewable energy investments. In particular, risk‐adjusted returns to a renewable energy portfolio may be affected by greater idiosyncratic risk.

show abstract

“…We used the weighted average cost of capital (Equation ( 1)) to adjust the opportunity cost rate (i) of the project, considering the participation of third-party capital and a proxy for the systematic market risk [62].…”

Section: Opportunity Cost Ratementioning

confidence: 99%

Photovoltaic Solar Energy in Forest Nurseries: A Strategic Decision Based on Real Options Analysis

et al. 2023

View full text Add to dashboard Cite

With the growing demand for investment projects in renewable energy, it is essential for the economic feasibility analysis to consider the inherent uncertainties of these projects and enable more accurate investment decisions. In this way, we analyze whether investment projects in photovoltaic panels to produce electrical energy in a forest nursery are economically viable through the analysis of real options. We consider the energy demand of a forest nursery with an initial investment of USD 90,417 in photovoltaic panels. The managerial flexibilities of deferral, expansion of 30.0% of the energy production capacity, and the project’s abandonment were inserted into the binomial model of the decision tree, built in discrete time. The project’s expanded net present value was 79.2% higher than the traditional net present value, capturing the value of flexibilities for managers. The deferral option was the one that most impacted the expanded net present value. Investment projects in photovoltaic panels to produce electricity in a forest nursery are economically viable when analyzed through real options.

show abstract

Does it pay to be environmentally responsible? Investigating the effect on the weighted average cost of capital

Cited by 10 publications

References 57 publications

Carbon disclosure policy, external financing needs and the cost of capital: Does financial market quality matter?

Carbon disclosure policy, external financing needs and the cost of capital: Does financial market quality matter?

Portfolio performance implications of investment in renewable energy equities: Green versus gray

Photovoltaic Solar Energy in Forest Nurseries: A Strategic Decision Based on Real Options Analysis

Contact Info

Product

Resources

About