The Relationship between the Greenhouse Gas and Energy Target Management System and Foreign Ownership: Investor Sensitivity to the Implementation of the System

Abstract

As the issue of climate change intensifies, the international community has been actively formulating strategies for mitigation and adaptation. With developed countries leading the way in enforcing stricter greenhouse gas emission regulations, the risks and opportunities associated with climate change have become critical factors in both domestic and international competitive markets. This study examines the investment preferences of foreign investors in companies managed under the Greenhouse Gas and Energy Target Management System (TMS) from 2010 to 2022. Furthermore, it delves into the sensitivity of these investors to the extent of each company’s adherence to the TMS, analyzing this responsiveness in terms of information asymmetry and corporate life cycle. Utilizing a sample of 19,826 firm-year observations from companies listed on the Korea Composite Stock Price Index (KOSPI) and the Korea Securities Dealers Automated Quotations (KOSDAQ) markets, this study’s regression analysis reveals several key findings. Firstly, foreign investors show a preference for investing in companies managed under the TMS compared to those not involved in this system. Secondly, high information asymmetry in the context of TMS implementation negatively impacts foreign investors’ preferences. Thirdly, among TMS-managed companies, foreign investors tend to favor those in the maturity stage of their life cycle. These results suggest that foreign investors perceive the systematic implementation of carbon reduction targets under a government-led TMS as an indicator of a company’s environmental management efficiency, influencing their investment decisions.