Effect of Climate Change Performance on Market Performance: Evidence from Indian Firms
DOI:
https://doi.org/10.68219/h8wajc27Keywords:
Climate Change Performance, Physical Climate Risk, Carbon Emissions, Dividend Payout RatioAbstract
The paper explores the effects of the climate change performance—physical climate risk exposure, climate change activity, carbon performance and climate transition risk—on the market-based performance indicators: dividend payout ratio (D/P), earnings per share (EPS) and price to earnings ratio (P/E). Fixed-effects panel regressions based on a panel of 100 Indian listed firms for 2018–2024 suggest that increased physical climate risk exposure is significantly negatively related to D/P, EPS, and all three market metrics, whereas increased climate change initiatives are significantly and positively related to all three-market metrics. The results align with global experiences of carbon performance and payout policy, showing that a lower carbon emission intensity is associated with a higher D/P ratio and EPS. Climate transition risk shows mixed effects, positively related to EPS and negatively related to P/E ratio, which indicates that climate transition-exposed firms are valued at a discount. The results are stable over different specifications, lags of climate variables and industry subsamples. The results support signaling, agency, and risk-based theories, suggesting that climate performance affects market valuations in emerging markets such as India, through dividend capacity, earnings quality, and risk.
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