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Do stock markets value green operations? Evidence from India

Nemiraja Jadiyappa (Department of Finance, Indian Institute of Management Raipur, Raipur, India)
Raveesh Krishnankutty (Indian Institute of Management Bodh Gaya, Bodh Gaya, India)

International Journal of Managerial Finance

ISSN: 1743-9132

Article publication date: 5 April 2022

Issue publication date: 12 July 2022

436

Abstract

Purpose

This 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/approach

The 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.

Findings

The 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 implications

The 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/value

In 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.

Keywords

Citation

Jadiyappa, N. and Krishnankutty, R. (2022), "Do stock markets value green operations? Evidence from India", International Journal of Managerial Finance, Vol. 18 No. 4, pp. 661-676. https://doi.org/10.1108/IJMF-06-2021-0305

Publisher

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Emerald Publishing Limited

Copyright © 2022, Emerald Publishing Limited

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