Earnings expectations of grey and green energy firms: Analysis against the background of global climate change mitigation

Abstract

Promoting the adoption of green energy and reducing the consumption of conventional energy are becoming one of the most critical subjects in our society. Against this background, what are the investors' earnings expectations and how they form their expectations of green and conventional energy firms are still unclear. In this study, we aim to fill these gaps by systematically examining investors' earnings expectations of these firms from 1992 to 2016. We find that market participants are overly optimistic about the future earnings of both grey energy and green firms. However, the earnings optimism about these two types of firms is less potent than the market average. Besides, the earnings expectations of both firms exhibit time-varying pattern that investors are more optimistic after 2008. Surprisingly, no significant difference in earnings expectations between grey and green companies is identified in the studied period. Regression results indicate a positive relation between firm investment (profitability) and earnings optimism of green (grey) firms, indicating that investors overestimate different firm characteristics of these firms when forming their earnings expectations.