Green investment in South Africa: A perception of overinvestment or underinvestment in energy and mining firms
-
DOIhttp://dx.doi.org/10.21511/imfi.21(1).2024.18
-
Article InfoVolume 21 2024, Issue #1, pp. 229-243
- 206 Views
-
64 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
This paper investigates green investments in energy and mining firms in South Africa to determine the efficiency level in terms of overinvestment and underinvestment. The general Richardson residual measurement model is employed, and an enhanced model is created by including variables that influence green investment, such as political connections and pollutant emissions. Data from 17 companies (5 energy and 12 mining) were used because of the significant effects of their operations on the environment over the period between 2015 and 2022. The study findings show that, in comparison to the estimated optimal investment level, South African energy and mining firms are not consistent regarding their investment level. It interplays between underinvestment and overinvestment. However, both firms demonstrated the tendency to green investment inefficiency due to underinvestment recorded in the latter years of the sample period. The study provides understanding as regards green investment levels of energy and mining firms and hence recommends adequate oversight and formulation of environmental policy by the government to ensure green investment efficiency in line with both national and international policies and regulations to facilitate a sustainable environment.
- Keywords
-
JEL Classification (Paper profile tab)Q56, R53
-
References50
-
Tables5
-
Figures3
-
- Figure 1. Energy firms
- Figure 2. Mining firms
- Figure 3. Summary of over-investment and under-investment of energy and mining firms
-
- Table 1. Descriptive statistics
- Table 2. Pairwise correlations matrix
- Table 3. Hausman test
- Table 4. Impact of investment opportunity on green investment
- Table A1. Variable descriptions
-
- Aboody, D., & Lev, B. (2000). Information Asymmetry, R&D, and Insider Gains. The Journal of Finance, 55(6), 2747-2766.
- Biddle, G. C., Hilary, G., & Verdi S., R. (2009). How does financial reporting quality relate to investment efficiency? Journal of Accounting and Economics, 48(2-3), 112-131.
- Bliss, A. M., & Gul, F. A. (2012). Political connection and cost of debt: Some Malaysian evidence. Journal of Banking & Finance, 36, 1520-1527.
- Boubakri, N., Guedhami, O., Mishra, D., & Saffar, W. (2012). Political connections and the cost of equity capital. Journal of Corporate Finance, 18(3), 541-559.
- Boudry, W. I. Kallberg, J. G., & Liu, H. C. (2013). Investment opportunities and share repurchases. Journal of Corporate Finance, 23, 23-38.
- BusinessTech. (2021). South Africa to develop R7.3 billion green investment plan. In Bloomberg (Ed.). South Africa.
- Chen, S., Sun, Z., Tang, S., & Wu, D. (2011). Government intervention and investment efficiency: Evidence from China. Journal of Corporate Finance, 17(2), 259-271.
- Cooper, M. J., Gulen, H., & Ovtchinnikov, A. V. (2010). Corporate Political Contributions and Stock Returns. The Journal of Finance, 65(2), 687-724.
- Czakó, V. (2012). Evolution of Hungarian residential energy efficiency support programmes: road to and operation under the Green Investment Scheme. Energy Efficiency, 5, 163-178.
- Du, H. S., Zhan, B., Xu, J., & Yang, X. (2019). The influencing mechanism of multi-factors on green investments: A hybrid analysis. Journal of Cleaner Production, 239, 117977.
- Eyraud, L., Clements, B., & Wane, A. (2013). Green investment: Trends and determinants. Energy Policy, 60, 852-865.
- Fazzari, S. M., Petersen, B. C., & Hubbard, R. G. (1988). Investment, Financing Decisions, and Tax Policy. The American Economic Review, 78, 200-205.
- García Lara, J. M., Osma, B. G., & Penalva, F. (2016). Accounting conservatism and firm investment efficiency. Journal of Accounting and Economics, 61(1), 221-238.
- Ge, J., Stanley, L. J., Eddleston, K., & Kellermanns, F. W. (2017). Institutional deterioration and entrepreneurial investment: The role of political connections. Journal of Business Venturing, 32(4), 405-419.
- Goldman, E., Rocholl, J., & So, J. (2008). Do Politically Connected Boards Affect Firm Value? The Review of Financial Studies, 22(6), 2331-2360.
- Gugler, K., Haxhimusa, A., Liebensteiner, M., & Schindler, N. (2020). Investment opportunities, uncertainty, and renewables in European electricity markets. Energy Economics, 85, 104575.
- Han, D., & Zhang, P. (2016). Monetary policy, financing constraints, and investment efficiency. Nankai Business Review International, 7(1), 80-98.
- Hayashi, F. (1982). Tobin’s Marginal q and Average q: A Neoclassical Interpretation. Econometrica, 50(1), 213-224.
- Heinkel, R., Kraus, A., & Zechner, J. (2001). The Effect of Green Investment on Corporate Behavior. Journal of Financial and Quantitative Analysis, 36(4), 431-449.
- Hubbard, R. G. (1997). Capital-market imperfections and investment.
- Hutchinson, M., & Gul, F. A. (2004). Investment opportunity set, corporate governance practices, and firm performance. Journal of Corporate Finance, 10(4), 595-614.
- Iyer, G. C., Clarke, L. E., Edmonds, J. A., Hultman, N. E., & Mcjeon, H. C. (2015). Long-term payoffs of near-term low-carbon deployment policies. Energy Policy, 86, 493-505.
- Ji, X., Li, G., & Wang, Z. (2017). Impact of emission regulation policies on Chinese power firms’ reusable environmental investments and sustainable operations. Energy Policy, 108, 163-177.
- Jin, S., & Zhang, Z. (2019). Political connections, government subsidies, and capital misallocation: Evidence from China. Government Subsidies, and Capital Misallocation: Evidence from China (March 22, 2019).
- Kaplan, S. N., & Zingales, L. (1997). Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints? The Quarterly Journal of Economics, 112, 169-215.
- Kaplan, S. N., & Zingales, L. (2000). Investment-Cash Flow Sensitivities Are Not Valid Measures of Financing Constraints. The Quarterly Journal of Economics, 115(2), 707-712.
- Karásek, J., & Pavlica, J. (2016). Green Investment Scheme: Experience and results in the Czech Republic. Energy Policy, 90, 121-130.
- Kim, C., & Zhang, L. (2016). Corporate Political Connections and Tax Aggressiveness. Contemporary Accounting Research, 33(1), 78-114.
- Korppoo, A. (2003). Forging alliance with Russia: the example of a Green Investment Scheme. Climate Policy, 3(1), 67-76.
- Krueger, A. O. (1974). The Political Economy of the Rent-Seeking Society. The American Economic Review, 64, 291-303.
- Liao, X., & Shi, X. (2018). Public appeal, environmental regulation, and green investment: Evidence from China. Energy Policy, 119, 554-562.
- Liu, L., Zhao, Z., Zhang, M., & Zhou, D. (2022). Green investment efficiency in the Chinese energy sector: Overinvestment or underinvestment? Energy Policy, 160, 112694.
- Liu, X. (2013). The value of holding scarce wind resources – A cause of overinvestment in wind power capacity in China. Energy Policy, 63, 97-100.
- Mielke, J., & Steudle, G. A. (2018). Green Investment and Coordination Failure: An Investors’ Perspective. Ecological Economics, 150, 88-95.
- Ming, Z., Ximei, L., Yulong, L., & Lilin, P. (2014). Review of renewable energy investment and financing in China: Status, mode, issues and countermeasures. Renewable and Sustainable Energy Reviews, 31, 23-37.
- Modigliani, F., & Miller, M. H. (1958). The Cost of Capital, Corporation Finance and the Theory of Investment. The American Economic Review, 48, 261-297.
- Myers, S. C., & Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics, 13(2), 187-221.
- Richardson, S. (2006). Over-investment of free cash flow. Review of Accounting Studies, 11, 159-189.
- Saeed, A., Belghitar, Y., & Clark, E. (2015). Political Connections and Leverage: Firm-level Evidence from Pakistan. Managerial and Decision Economics, 36(6), 364-383.
- Simon, H. A. (1979). Rational Decision Making in Business Organizations. The American Economic Review, 69(4), 493-513.
- Smith, C. W., & Watts, R. L. (1992). The investment opportunity set and corporate financing, dividend, and compensation policies. Journal of Financial Economics, 32(3), 263-292.
- Tobin, J. (1969). A General Equilibrium Approach To Monetary Theory. Journal of Money, Credit and Banking, 1(1), 15-29.
- Verdi, R. S. (2006). Financial reporting quality and investment efficiency.
- Wang, H., & Liu, H. (2019). Foreign direct investment, environmental regulation, and environmental pollution: an empirical study based on threshold effects for different Chinese regions. Environmental Science and Pollution Research, 26(1), 5394-5409.
- Whited, T. M. (1992). Debt, Liquidity Constraints, and Corporate Investment: Evidence from Panel Data. The Journal of Finance, 47(4), 1425-1460.
- Xiong, Y., & Yang, X. (2016). Government subsidies for the Chinese photovoltaic industry. Energy Policy, 99, 111-119.
- Yiwei, Dou, M. H. Franco Wong, & Xin, B. (2019). The Effect of Financial Reporting Quality on Corporate Investment Efficiency: Evidence from the Adoption of SFAS No. 123R. Management Science, 65(5), 2249-2266.
- Yu, X., Yao, Y., Zheng, H., & Zhang, L. (2020). The role of political connection in the overinvestment of Chinese energy firms. Energy Economics, 85, 104516.
- Zahan, I., & Chuanmin, S. (2021). Towards a green economic policy framework in China: role of green investment in fostering clean energy consumption and environmental sustainability. Environmental Science and Pollution Research, 28(6), 43618-43628.
- Zhu, X., Du, J., Boamah, K. B., & Long, X. (2020). Dynamic analysis of green investment decision of the manufacturer. Environmental Science and Pollution Research, 27, 16998-17012.