Abnormal carbon emissions, environmental performance and firm value in the US

![CDATA[The study examines the relationship between carbon reduction performance and firm value. We measured carbon reduction performance using an innovative proxy: abnormal carbon emissions. We reviewed US carbon institution which suggest the US climate institutions do not warrant investors would perceive the normal level of carbon emissions as potential liabilities but abnormal emissions are. The normal level of carbon emissions is defined as emissions under the usual operating conditions in a business sector. We identify two major factors that are determinants of the normal emissions, namely the scale of production and advancement of technology. Methodologically, the paper measures abnormal carbon emissions as the deviation between actual emissions of a firm and the estimated normal amount of carbon emissions in its sector. The difference reflect the outcome of a firm’s effort to control carbon emissions and thus represent an objective measure of carbon reduction performance. We use a sample of S&P 500 companies over the period 2007-2015 and run a panel data fixed effects model. The results show that abnormal carbon emissions are value relevant for market participants’ decision-making and discount firm value. Our results are robust to different estimation procedure, sample selection bias and alternative model specifications.]]