Article
CARBON PRICING AND FINANCIAL PERFORMANCE: EVIDENCE FROM INDIAN FIRMS
This study investigates the financial implications of carbon pricing exposure for Indian firms, focusing on accounting-based and market-based performance indicators. Using firm-level data from the ORBIS database for the period 2010–2023, we examine the relationship between carbon exposure, proxied by industry carbon intensity and energy cost shares, and firm profitability (Return on Assets), market valuation (Tobin’s Q), and stock market valuation. Employing fixed-effects panel regressions with robust standard errors, we find that carbon-intensive firms experience significantly lower profitability and market valuation, while non-carbon-intensive firms remain largely unaffected. The negative effects are more pronounced for market-based measures, indicating that investors actively price carbon-related regulatory and transition risks. Heterogeneity analyses confirm that the financial burden of carbon pricing is concentrated in carbon-intensive sectors, suggesting a reallocation rather than uniform decline in firm value. The results remain robust to alternative performance measures, lagged exposure, and industry exclusions. The findings highlight the importance of predictable carbon pricing pathways, credible carbon disclosure, and proactive low-carbon investment strategies for corporate managers. By providing the first large-scale, firm-level evidence from India, this study extends the literature on carbon pricing and financial performance in emerging economies and offers insights for policymakers and investors navigating the low-carbon transition.
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