How do decarbonization policies affect a firm's financial performance? Evidence from emergent economies

Countries can rely upon decarbonization policies that stimulate the green transition of energy systems to combat global warming. However, such policies can provide financial opportunities to local firms as they lead to changes in the performance of the national energy system. Using a sample composed of 5936 nonfinancial listed firms operating in 42 developing countries over the period 2015–2024, our study investigates how the decarbonization strategies of local authorities affect corporate financial performance. Panel regressions reveal that a more diversified network of energy suppliers contributes to an increase in the financial performance of firms from Southeast Asia and Latin America. Strengthening the decarbonization regulations and the political commitment to energy transition policies leads to high corporate performance in the region of Sub-Saharan Africa. Estimates also pointed out that listed firms from Middle East and North Africa can financially benefit from investments in energy system infrastructure. Interestingly, the mechanisms that could explain the positive effects of such decarbonization policies include reducing operational costs and enhancing firms' capacity to repay their debts.