Econonomics of Energy and Environmental Policy

Article Details

Do Sustainable Operations through Energy Effectiveness Reduce Cost of Debt in Medium and High-tech Industries? Evidence from an Emerging Economy

Abstract:
Access to low-cost finance is a significant factor influencing firms’ investment decisions in research and development, which is crucial for corporate success. The goal becomes critical when the firm’s sustainability policy channels energy consumption, resulting in optimal capital allocation for new, resource-efficient technologies. Despite its significant relevance in policymaking, there has been little academic study on the potential influence of energy efficiency on enterprises’ cost of debt, particularly in emerging countries such as India. To gain a deeper understanding, this study examines the impact of a firm’s energy efficiency, a strategic step in sustainable operational practices, on the cost of debt for high- and medium-tech firms in India. For this purpose, we conducted a panel data analysis using 7,603 observations classified as high and medium tech from 2010 to 2022, employing two-stage least squares Tobit regression models. The findings show that firms with policies on energy efficiency measures could benefit from lower borrowing costs in their financing decisions. The findings reveal a curvilinear relationship between firms’ energy efficiency and the cost of debt in both the high-tech and medium-tech sectors, suggesting that efficient energy consumption can yield financial advantages beyond a certain point, after which a diminishing effect may occur. However, the findings do not hold when firms are less energy efficient and ownership changes to foreign control. The insights of the study may guide firms in developing countries in formulating their energy policy toward environmental sustainability, designing an effective ownership structure, and allocating resources while reducing financing expenses, thus aligning corporate interests with economic objectives. Financial institutions can also leverage these outcomes when formulating a lending policy that considers firms’ energy efficiency.
Download PDF
Executive Summary: View

Keywords: Sustainable Operation, Energy efficiency, Cost of Debt, High-Tech, Medium-Tech

DOI: 10.5547/2160-5890.14.1.proy


View References


Published in Volume 14, Number 1 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.


 

© 2025 International Association for Energy Economics | Privacy Policy | Return Policy