Belated stock returns for green innovation under carbon emissions trading market

Abstract

Carbon trading is an important market mechanism to achieve carbon neutrality. This study explores the possible impact of carbon markets on the stock market performance of listed companies using data from 2013 to 2022 in China's carbon trading pilot regions. Using the event shock of delayed trading in the Chinese carbon market, we attempt to answer the question of the role of green innovation hidden under the compliance event. Results show that a 1% increase in carbon market turnover leads to an average decrease of CNY 0.123 in the company's stock price. Large-scale companies that have been listed for a short time and have poor green innovation capabilities are more vulnerable to the carbon market. Under delayed trading, firms with high green innovation capability will be profitable. By contrast, profitability is not reflected in low green innovation firms. Companies with low green innovation can reduce stock market performance owing to the carbon market's undersupply situation. Our study reveals the stock performance of different carbon trading entities under delayed trading, providing a realistic basis for firms to choose green innovation while helping to improve carbon trading market dynamics.