Green Finance And Firm Value: Evidence From Indian Firms

Abstract

The growing urgency of climate change and sustainable development has positioned green finance as a critical instrument for aligning environmental objectives with corporate value creation. While existing literature documents a positive association between environmental performance and firm outcomes in developed economies, empirical evidence from emerging markets-particularly India-remains limited and methodologically fragmented. This study examines the impact of green finance on firm value using a comprehensive panel of 427 non-financial firms listed on the National Stock Exchange (NSE) of India over the period 2010-2023. Employing a dynamic panel data approach based on system Generalized Method of Moments (GMM), the analysis accounts for endogeneity, unobserved heterogeneity, and persistence in firm valuation. Firm value is measured using Tobin’s Q and the Market-to-Book ratio, while green finance is captured through firm-level adoption of green bonds, green loans, and sustainability-linked financing. The findings reveal a robust and statistically significant positive relationship between green finance engagement and firm value. Moreover, this relationship is amplified for firms with higher ESG disclosure quality and board-level sustainability oversight, highlighting the importance of transparency and governance in translating green finance into market value. The results remain consistent across alternative specifications, sub-sample analyses, and robustness checks. By providing causal evidence from a large emerging economy, this study contributes to the sustainable finance literature and offers policy-relevant insights for regulators, investors, and corporate managers navigating India’s green transition.