Carbon risk and corporate capital structure

Justin Hung Nguyen and Hieu V. Phan

Journal of Corporate Finance, 2020, vol. 64, issue C

Abstract: This research exploits Australia's ratification of the Kyoto Protocol, which mandates the country to reduce carbon emissions, thereby exposing Australian firms to increased carbon risk, as a quasi-natural experiment to examine the causal effect of carbon risk on firm capital structure. We find that the Kyoto Protocol ratification leads to a decrease in financial leverage of heavy carbon emitting firms and such a decrease is more pronounced for financially constrained firms. Further analysis indicates that increased carbon risk leads to higher financial distress risk, which motivates firms to decrease financial leverage.

Keywords: Carbon risk; Capital structure; Financial distress; Financial constraint (search for similar items in EconPapers)
JEL-codes: G32 Q51 Q58 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (101)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:64:y:2020:i:c:s0929119920301577

DOI: 10.1016/j.jcorpfin.2020.101713

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