 Environmental regulation and the cost of debt: Evidence from the carbon emission trading system pilot in ChinaXiaoran Ni, Qi Jin and Kunhao Huang Finance Research Letters, 2022, vol. 49, issue C Abstract: This paper explores the financing effect of environmental regulation in view of the cost of debt. Using a sample of Chinese A-share listed firms from 2010 to 2016, we document that the introduction of the Carbon Emission Trading System (ETS) pilots significantly increases a firm's cost of debt by 0.140 percentage points on average. This effect is exacerbated for firms with higher external finance dependence, facing higher external pressures, and operating in a more competitive product market, and is weakened for firms with higher mortgage capacity. Overall, we show that the implementation of ETS may incentivize risky investments, which may be value enhancing in the long run to some extent, but also increase the distress risk, and increase the risk premium requirements of creditors who pay more attention to downside risks. Keywords: Environmental regulation; China's carbon emission trading system; Corporate financing; Cost of debt (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:49:y:2022:i:c:s1544612322003579 DOI: 10.1016/j.frl.2022.103134 Access Statistics for this article Finance Research Letters is currently edited by R. Gençay More articles in Finance Research Letters from Elsevier |
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