This study aims to analyze the effect of corporate carbon emissions (CRBEs) on financial performance (FNP) in the context of a carbon-non-regulated economy. More importantly, the study also purports to analyze the moderating role of corporate governance (CRGV) practices in describing this nexus.
This study builds on a data set of 1,281 firm-year observations from 2014 to 2024, using a fixed-effects panel regression method to test the hypothesized relationships. Moreover, the robustness of the findings has been validated through Heckman’s two-stage regression and system GMM approach to control for self-selection bias and endogeneity issues.
The findings suggested that CRBE has a significant adverse effect on accounting (β = −0.038; p < 0.05) and market-based (β = −0.544; p < 0.01) financial performance. Furthermore, the results confirmed that CRGV negatively moderates the FNP–CRBE relationship at a 5% significance level. Specifically, firms with larger board size (β = −0.021, −0.088), greater board independence (β = −0.029, −0.095) and women’s representation on the board (β = −0.018, −0.172) were able to control the adverse effects of environmental degradation on the financial performance.
The present findings assist policymakers in using CRGV regulations to control the environmental consequences of corporate actions. Regulators can adopt affirmative policy measures to improve CRGV efficacy instead of penalty-based carbon regulations to enhance receptivity among business firms.
Despite growing importance, the extant literature has largely undermined the critical role of good governance in mitigating the adverse effects of CO2 emissions. The current study provides pioneering evidence on the moderating effect of CRGV on the FNP–CRBE within the unique context of a carbon non-regulated economy.
