Does carbon efficiency improve financial performance? Evidence from Chinese firms

In response to the global climate change, the actions of Chinese government to cut down carbon emissions have brought great risks and opportunities to firms. Considering that the production process with energy consumption is inevitably accompanied by carbon emissions, this paper uses SBM-DEA model with undesirable output to evaluate firms' carbon efficiency from production perspective. Then we use the fixed-effect panel data model to study the relationship between carbon efficiency and financial performance of Chinese firms. Furthermore, we analyze whether the resource efficiency has a moderation effect on the relationship between carbon efficiency and financial performance. The results show that the carbon efficiency has a significantly positive effect on the total asset turnover (short-term operating capacity) and Tobin's Q (long-term market value) of Chinese firms, while impacts the total risk (the combination of systemic and non-systemic risks) negatively and significantly, especially for firms in carbon-intensive industries. With the improvement of resource efficiency, the impact of carbon efficiency on financial performance begins to weaken. The carbon efficiency and financial performance have monotonic effect, while resource efficiency and carbon efficiency have interactive effect. Overall, we prove that high carbon efficiency can improve the financial performance, as well as reduce the risks of firms. Based on the results, we make some suggestions for firms to improve both the carbon efficiency and the financial performance.