Amidst the growing calls on firms to reduce carbon emissions, the value-creating implications of doing so remain unclear. Adopting a signaling perspective, we argue that firms excelling in carbon emission reduction, particularly in challenging, indirect emission categories, emit strong signals about the quality of their unobservable intangible resources, thus elevating their economic value. We further suggest that superior performance in less complex emission categories can also bolster value, especially in firms with a culture of trust. A longitudinal analysis of a sample of publicly listed US firms supports these predictions. Moreover, our findings indicate that short-term financial performance may dip as firms invest in emission reduction, but organizational trust can mitigate such hits.
