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Carbon Emission Intensity and Investment Efficiency in the European Union: The Moderating Role of Analyst Coverage and Environmental Innovation

Author

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  • Muhammet Kocaman
  • Elif Akben Selçuk

Abstract

This study examines the impact of carbon emission intensity (CEI) on investment efficiency (IE) as well as the moderating role of analyst coverage and environmental innovation in this relationship for firms operating in the European Union (EU). A panel data set consisting of 5,501 observations of 931 firms for the period 2008-2023 is used. Empirical analyses conducted using the OLS method estimated with Driscoll-Kraay standard errors show that CEI has an overall negative effect on IE, and this effect is particularly pronounced for firms that over-invest. These main findings are robust to alternative investment efficiency measures and alternative estimation methodologies. In addition, analyst coverage and environmental innovation exacerbate the negative effect of CEI on IE. Last, heterogeneity analyses indicate that the negative effect of CEI on IE is stronger for firms with lower levels of green revenue and those not participating in the Emissions Trading System (ETS). The study reveals that policies to increase IE should be designed by taking into account firm- and sector-level conditions.

Suggested Citation

  • Muhammet Kocaman & Elif Akben Selçuk, 2025. "Carbon Emission Intensity and Investment Efficiency in the European Union: The Moderating Role of Analyst Coverage and Environmental Innovation," Journal of Research in Economics, Politics & Finance, Ersan ERSOY, vol. 10(SI), pages 403-434.
    • Handle: RePEc:ahs:journl:v:10:y:2025:i:si:p:403-434
    DOI: 10.30784/epfad.1723582
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    References listed on IDEAS

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    1. Choi, Bobae & Luo, Le, 2021. "Does the market value greenhouse gas emissions? Evidence from multi-country firm data," The British Accounting Review, Elsevier, vol. 53(1).
    2. Patrick Bolton & Marcin Kacperczyk, 2024. "Are Carbon Emissions Associated with Stock Returns? Comment," Review of Finance, European Finance Association, vol. 28(1), pages 107-109.
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    Keywords

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    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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