The Moderating Role of R&D Investment and Board Characteristics in the Liquidity–Carbon Emissions Relationship: Evidence from Emerging Economies

Abstract

This study explores the relationship between liquidity reserves (LR) and carbon emissions (CE) in emerging economies—Bangladesh, India, and China—using a balanced panel of 1,500 firm-year observations from 2015 to 2024. Drawing from agency and resource-based theories, we examine how corporate governance mechanisms and R&D investment (RDI) influence this relationship. Using a two-step system GMM estimator, we find that higher LR is positively associated with CE, suggesting potential managerial misuse of idle cash. However, specific board characteristics—such as larger board size, two-tier structures, and external consultants—significantly mitigate this effect. Notably, RDI moderates the LR–CE relationship, reducing its positive impact by 37%, highlighting its role as a strategic buffer against environmental harm. The study contributes to the literature by integrating governance and innovation as moderating mechanisms in the cash-emission nexus. These findings have significant implications for corporate strategy and environmental policy, especially in developing markets where governance structures are often weak. Encouraging RDI and governance reforms may help realign financial flexibility with sustainability goals.