Corporate Green Transition Capacity and Financial Performance

This study examines the relationship between GTC and firm performance and how it varies with firms’ carbon emissions and institutional environment. Using an international sample from 2002–2019, our empirical evidence shows that firms with stronger GTC tend to have better FP. In addition, the positive relationship between GTC and FP is observed in the later years of our sample period. Cross-sectional tests reveal that the impact of GTC on FP is stronger when firms have higher carbon emissions. We also document that national culture moderates the GTC–FP link: the relationship is stronger in countries characterized by high individualism, high masculinity, low uncertainty avoidance, and short-term orientation. Finally, we find that this positive relationship is stronger in non-carbon-intensive sectors, in common law countries, and in countries with better climate change performance and higher public awareness of environmental, social, and governance issues. These findings suggest that firms’ external institutional environment influences the role of GTC.