How do financial leverage and CO2 emissions affect the performance of venture capital-backed firms?

Abstract

This research examines the complex interplay between financial leverage, CO2 emissions and the performance, of venture capital-backed companies, investigating their influence on financial metrics and stock market valuations over 3 consecutive one-year-lagged periods. Focusing on venture capital-backed entities, the study examines the relationship between high financial leverage and lower financial performance indicators such as ROE, ROA and Tobin's Q. Simultaneously, it explores the repercussions of lower CO2 emissions on the financial performance of these companies, with the aim of discovering positive correlations between CO2 emissions and financial indicators. The methodology uses panel data analysis integrating datasets from Thomson VentureXpert, Compustat via WRDS and Refinitiv Eikon databases. The dataset includes 326 US venture backed companies from 2002 to 2022, encompassing financial performance, CO2 emissions, and control variables for a comprehensive assessment. The study findings indicate that higher financial leverage negatively affects ROA and ROE initially, with Tobin's Q showing limited impact. In contrast, lower CO2 emissions consistently correlate with higher ROE, ROA, and Tobin's Q across all periods, although the effect on ROE varies over time. This study highlights the complex relationships that shape financial dynamics among venture capital-backed companies.

Date of Award	10 May 2024
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Fátima Shuwaikh (Supervisor)