Firm-value effects of carbon risk and influence from organisational strategy

This thesis examines the relevance of organisational strategy for the valuation implications of carbon risk. A relative carbon intensity measure is developed to assess a company’s carbon risk relative to time and its competitors. An organisational strategy measurement proposed by Bentley, Omer, and Sharp (2013) and based on the Miles and Snow framework (1978) is modified to identify two types of firms with opposite strategy orientation, prospectors and defenders. Facing a carbon constrained future, it is posited that the value decrement caused by carbon risk is lower for cost-efficiency-oriented defenders comparing to innovation-oriented prospectors. Based on 651 firm-year observations from 134 high-emitting Australian firms which meet the National Greenhouse and Energy Reporting (NGER) reporting thresholds, the results reveal that the market perceives defenders more unfavourably than prospectors. Importantly, it is also found that the market penalises defenders less harshly for their carbon risk than prospectors. This result is consistent with the expectation that defenders are exposed to lower carbon risk because of their conservative business characteristics, such as stringent regulations compliance, extensive resource sharing and risk-averse market pursuits. These core findings, which indicate that shareholders assess business carbon risk contingently on company strategy orientation, initiate the connection between organisational theory and environmental economics, and also generate significant implications for businesses, researchers and carbon-related policy makers