Carbon performance of firms in developing countries: The role of financial slack, carbon prices and dense network

Abstract

In this article, we explore how financial slack, carbon prices and dense network of partners influences the carbon performance of firms in a developing country context. Based on the regression analysis of carbon offset market activities of South Asian cement manufacturing firms during the observation period 2005 to 2012, we find that the availability of financial slack has a positive effect on carbon performance. Contrary to expectations, this relationship is negatively moderated by carbon prices, so that the carbon performance of companies with greater financial slack is higher when carbon prices are lower. We find that the firm’s dense network of partners positively moderates the relationship between financial slack and carbon performance, emphasizing the influential role of intermediaries operating in the carbon market. Contrary to current thinking on climate policy, our study reveals that lower rather than higher carbon prices, where the firm has a dense network of partners as well as financial slack available, results in better emissions performance.