The impact of greenhouse gas emission on corporate’s tail risk

ABSTRACT

To ensure firm’s survival through impermanent market turbulences, corporations need to secure investors’ kindness and empathy to adjust their stock prices. Being environmentally responsible seems to be an appealing quality for that purpose. Our research aims to explore the association between firm greenhouse gas (GHG) emission and its downside tail risk, using panel data comprising the FTSE350 firms during the 2008–2018 period. We found that firms that emit more GHG are likely to be harshly penalized by the shareholders through the higher likelihood of extreme negative stock returns, i.e. tail risk. Intriguingly, the association tends to be evidenced after the Paris Agreement 2015 and for firms operating in industries with high emission intensity. The research provides implications for firms to focus on enhancing their environmental performances for higher market trust, rewards, and generosity, especially during their financial downturns or negative market events.

KEYWORDS:

• Global warming
• greenhouse gas emission
• environment
• stock return
• tail risk

JEL CLASSIFICATION:

• Q54
• G32

Acknowledgements

The authors extend their appreciation to the Deputyship for Research & Innovation, Ministry of Education in Saudi Arabia for funding this research work through project number (IFT20014).

Disclosure statement

No potential conflict of interest was reported by the author(s).

Data availability statement

The data are available on request.

Additional information

Funding

This research is funded by the Deputyship for Research & Innovation, Ministry of Education in Saudi Arabia.