Are Green Firms Valued Differently? Evidence from Valuation Multiples in Indian Equity Markets

Abstract

The study examines how "green" companies are perceived relative to traditional companies by the public equities market in India, utilizing valuation ratios as opposed to measuring returns. A total of 740 firms were examined using the Screener. in export and categorized as either Green or Conventional based on their inclusion in the NIFTY100 ESG constituent list (Green_Flag = 1 if an ESG constituent, zero otherwise). The sample consisted of 66 Green and 674 Conventional firms. Three common valuation ratios — P/E, EV/EBITDA, and P/S — were utilized to proxy for valuation and winsorized at 1% to eliminate potential outliers, allowing for the estimation of these ratios with heteroskedasticity-consistent HC3 robust standard error estimates. The separation of valuation ratios among firms in each group is somewhat limited and generally consistent with the larger body of literature, which has demonstrated that ESG-related valuations vary across markets due to different ESG classifications and are sensitive to model specifications. The Green Flag is negative and statistically significant across all three valuation ratios in the baseline sample, when controlling for firm size, profitability, and debt-servicing capacity, indicating a "green discount" within the screened universe of firms. When conducting a robustness check using 1:3 nearest neighbour matching (matching 66 Green firms to 198 Conventional firms), the relationship becomes attenuated; the coefficients continue to be negative but lose statistical significance, which suggests that part of the initial difference in valuation represents comparability and composition effects. These results contribute to the ESG valuation literature related to emerging markets by demonstrating that simply comparing valuation ratios can be misleading and that any conclusions will depend on the specific control variables and matched comparator(s) chosen, thereby having direct implications for ESG communications, valuation practices, and disclosure quality.