Does the sun ‘shine’ on utility firms? Evidence from pollution control bonds and overinvestment relationship
Journal of Financial Reporting and Accounting
ISSN: 1985-2517
Article publication date: 24 October 2023
Issue publication date: 21 February 2024
Abstract
Purpose
This study aims to investigate the impact of pollution control bonds (PCBs) on overinvestment within utility firms.
Design/methodology/approach
This empirical study analyzes a data set comprising 215 US energy firms observed from 2011 to 2021, using the ordinary least square regression with standard errors adjusted for firm-level clustering.
Findings
The study reveals a negative relationship between PCBs and overinvestment, indicating that PCBs are an effective tool in curbing excessive investment. Additionally, it demonstrates that chief executive officer (CEO) overconfidence diminishes the influence of PCBs on overinvestment. These findings remain robust across various metrics for measuring overinvestment and CEO overconfidence, as well as when alternative estimation methods are used. These results align with insights derived from agency theory and upper echelon theories.
Research limitations/implications
Regulators are encouraged to actively promote the use of PCBs as a financing tool for environmentally focused initiatives. To achieve this, regulatory bodies should enhance their presence within the utility sector, particularly in regions grappling with higher pollution levels. This requires the implementation of strategic policies and regulatory frameworks aimed at mitigating excessive investments. Simultaneously, policymakers should take proactive measures to introduce financial instruments designed to optimize investment efficiency, thus facilitating eco-friendly projects.
Originality/value
To the best of the authors’ knowledge, this paper holds the distinction of being the first to examine the impact of a specific type of green bond, namely, PCBs, on overinvestment. Furthermore, it contributes to the literature on personality traits, particularly within the context of the upper echelon theory, by investigating the moderating influence of CEO overconfidence.
Keywords
Acknowledgements
The authors are grateful to the anonymous referees of the journal for their extremely useful suggestions to improve the quality of the article. Usual disclaimers apply.
Conflict of Interest: The authors declared no potential conflicts of interest with respect to the research, authorship and/or publication of this article.
Data Availability Statement: Data sharing is not applicable to this article as no new data were created or analyzed in this study.
Funding: The authors disclosed receipt of the following financial support for the research, authorship and/or publication of this article.
Citation
Khiari, C., Khanchel, I. and Lassoued, N. (2024), "Does the sun ‘shine’ on utility firms? Evidence from pollution control bonds and overinvestment relationship", Journal of Financial Reporting and Accounting, Vol. 22 No. 1, pp. 105-130. https://doi.org/10.1108/JFRA-07-2023-0370
Publisher
:Emerald Publishing Limited
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