Carbon Management System and Firm Operational Efficiency

ABSTRACT Using data on carbon management initiatives disclosed to the CDP by the United States companies from 2010 to 2017, we examine whether the quality of the carbon management system (CMS) affects firm operational efficiency. We find that the quality of CMS is positively associated with operational efficiency. This relationship remains robust across a range of endogeneity tests, including the Heckman two‐stage model, propensity score matching, two‐stage least squares with an instrumental variable approach, panel Granger causality tests, the impact threshold for a confounding variable, and the Oster (2019) method. Channel analysis reveals that high‐quality CMS contributes to increased green revenue and enhances internal processes that reduce input costs, such as cost of goods sold, property, plant and equipment, selling, general and administrative expenses, and purchased goodwill. Furthermore, additional analyses indicate that the positive association between CMS and operational efficiency only exists in firms that (1) operate in regions with the Regional Greenhouse Gas Initiative, (2) operate in a highly competitive environment, (3) face systematic risks, or (4) exhibit higher profitability. These findings extend the extant literature by presenting systematic evidence on the effect of CMS on operational efficiency and help inform the debate over the costs and benefits of CMS in combating global climate change.