Undergraduate empirical research paper, bachelor BA, major Finance. Topic climate finance
Investigate if:
A: Companies that are active on the Carbon offset market (buyers)
Have a better
B; Perform financially better / Result on the stock market
Research question: What is the effect of investing in carbon offset markets on firm valuation?
Possible regression model/methodology see appendix1
Dataset required:
1. Number of carbon credits acquired per company / industry sector
2. Financial performance of stock listed companies: who invested in carbon credits + who do not
Data considerations
1. Carbon offset market
– Data of market volume by company gvkey number and name, industry sector and country.
o should be compared to the total estimated value of the carbon offset market (does the dataset cover 2%/ 10% / 50% or more of the total estimated market value? needs to be sufficiently large set (like provided from me)
– Where is data available on the total estimated value of carbon offset market (multiple sources or estimates). Source is important.
2. Financial performance by companies
– List of stock listed companies, per country, per industry sector
– Per company, the financial performance: this can be determined by either
o Current Earnings per share
o Firm size
o Profitability
o Leverage
o Earnings per share growth over past 5 years
o Stock price growth over past 5 years
o Current market value of company
o Market value per company growth over past 5 years
o Other??
Note: all tests must be done via STATA + logbook of process
Data already acquired
A: Companies that are active on the Carbon offset market
– Available is a data file (excel) with carbon offset buying volume over the past 11 years included: sector, country, retirement date, compliance/voluntary. This file is obtained by a mentor, so it is highly preferable to use
– If other or better data sets are to be obtained, it can be considered to either
o Merge the files
o Choose the preferable one, but with good explanation why
B; Financial performance by companies
– A list of companies with their financial performances, described in data considerations 2. Financial performance data should be gathered for both companies that do participate in the carbon offset markets and for companies that do not participate in the carbon offset market. The reason for this is the binary ICC in appendix1
Required outcome
Step 1: Obtain a dataset providing quantities of acquiring carbon credits per company
Step 2: Obtain a dataset of financial performance per company
– As stated in appendix 1, sector information also needed for the binary ERS
It is anticipated that the number of companies active on the market of carbon offset is smaller than the number of stock listed companies worldwide. Therefor the number of companies on data A should be much smaller than the number of companies on data B.
Data A & Data B should be compared per company, (country, per industry sector)
The goal of this empirical research paper is to examine:
1. Do companies that are active on carbon offset market financially perform better than companies who are not active on carbon offset market
2. To examine the effect of industry and regulatory factors on the relationship between carbon offset markets and firm valuation.
3. (Are certain countries more active than other industry sectors AND do they perform financially better) not main point but nice to add
What is expected:
– Write the “research question and hypothesis” (small part), write the “methodology and data” part, the “empirical results” and the conclusion / discussion
– All parts written must align with the literature review that has been sent as well. Otherwise those parts need to be rewritten as well. If you can apply higher quality then a diverse version is admitted.
Possible hypothesis:
H0: there will be no effect of investing in carbon credits on firm valuation
H1: Firms that participate in carbon offset markets will have a higher valuation than firms that do not participate.
H2: The positive impact of carbon offset market participation on firm valuation will be stronger in countries with more stringent environmental regulations.
(H3: carbon offset markets will have a positive effect on the growth potentials for firms in developing countries ) might be eliminated