Do Politically Connected Firms Perform Better in Carbon Emission Performance? Evidence From Indonesian Firms

ABSTRACT This study aims at exploring the role of political connections on the corporate carbon emission performance in Indonesia, which is one of the world's biggest emitters of greenhouse gases. The data used in this study are 1582 firms from 2016 to 2022, and the results reveal that politically connected firms outperform unconnected firms in terms of carbon emissions. The positive relationship between political connections and carbon emission performance is attributed to these firms' ability to secure more sustainable energy sources through political networks. Robustness checks employing Coarsened Exact Matching (CEM) and Heckman's two‐stage regression validate these results. Further analysis indicates that the impact of political connections is significant across both large and small firms, with a slightly stronger effect observed in smaller firms, as they may benefit more from political ties to offset their limited resources for sustainability practices. Moreover, the influence of political connections is more pronounced in industries with lower environmental risk, where politically connected firms likely use their ties to proactively manage carbon emissions and enhance their competitive advantage. This research contributes to both practical applications and academic discourse by illustrating how political connections can be strategically utilized to improve environmental outcomes, particularly in emerging markets like Indonesia, and underscores the necessity for further exploration of this intricate relationship.