Year of Graduation
The Effectiveness of the Divestment of Energy Companies in Developed Countries in the Transition to a Low-carbon Economy
Strategic Corporate Finance
For mitigating the risk of stranded assets, an increasing number energy companies have chosen to restructure their operations in line with a low-carbon future. While some firms have decided to divest their carbon-intensive assets (coal, oil, and natural gas), others have diversified by acquiring renewable energy businesses (wind, solar, and batteries). In this research we investigate the antecedents and outcomes of energy companies transitioning towards low-carbon energy sources. We collected a sample of 2,824 traditional energy companies, out of which 322 have divested a fossil-fuel related asset or acquired a renewable energy company between 2011 and 2018. Firstly, using a logit panel we found that companies with higher institutional ownership, based in countries characterized by higher deployment of renewables technologies and lower dependency on fossil fuel, are more likely to shift to low-carbon sources. Secondly, conducting an event study we found that initiating a low-carbon strategy generates positive significant average cumulative abnormal returns (6.86%), that are consistently higher than those perceived by companies announcing an investment in fossil-fuels (0.15%).