Carbon performance, company financial performance, financial value, and transmission channel: an analysis of South African listed companies

This article examines the influence of carbon performance on corporate financial performance and company financial value among South African listed firms for the period 2014 to 2018 using a two-step GMM panel process. The short-run findings show that carbon performance develops a positive and significant association with return on assets, firm value, and Tobin's Q. In the long run, the relationship between carbon performance and return on assets as well as firm value is significantly negative; however, the link with Tobin's Q remains positively significant. Where carbon performance is employed as the dependent parameter, a positive, significant relationship is established with return on assets, firm value, and Tobin's Q in both the short and long run. The findings also demonstrate that carbon performance is a transmission channel whereby the debt-to-equity ratio, interest cover ratio, price to cash flow ratio, and current ratio improve corporate financial performance and firm value in the long run. In the short run, the regression analysis frameworks produce mixed findings on whether carbon performance is a transmission channel. Policy recommendations are made based on the findings.