Corporate Environmental Strategy: An Examination of Firm Carbon Emissions, Environmental Expenditures, and Financial Performance

What is the rationale and financial value of firm environmental expenditures? In this paper, I examine the relationship between carbon emissions levels, environmental expenditures, and financial performance across a panel dataset of publicly traded companies in the United States from 2002 to 2021. This paper expands recent literature on corporate environmental strategy by focusing on a broader definition of environmental expenditures as a method of sustainable corporate practices. Using a two-way fixed-effects model across various specifications, the results reveal two key findings. First, carbon emissions increase environmental expenditures, suggesting that high-polluting firms invest in environmental protection to mitigate socio-political concerns. Second, environmental expenditures decrease firm value and profitability, as these costs do not produce any immediate financial benefits. Ultimately, this paper provides valuable implications for corporate managers, investors, and policymakers in evaluating corporate environmental strategy