Emissions trading scheme participation and firms’ cash holdings

Rilwan Sakariyahu, Rodiat Lawal, Nana Abena Kwansa, Ammar Ahmed and Gbenga Adamolekun

Finance Research Letters, 2023, vol. 58, issue PC

Abstract: This study investigates the effect of participating in an emissions trading scheme (ETS) on firms' future cash holdings. Using global firm-level data from different continents, our findings show that, notwithstanding the benefits of ETS, its membership has a significant impact on firms' cash holding. Additionally, we document that bankruptcy risk, firm growth potential, corporation tax, and financial constraints mitigate the impact of ETS on corporate cash holdings. Furthermore, we find that the country of operations, continent, and legal origin of the domiciled firm influence the association between ETS and firm cash holdings level. The results are robust to difference in differences (DiD) estimation and a variety of econometric specifications.

Keywords: Climate change; Emission trading scheme; Cash holdings; Bankruptcy risk; Financial constraints (search for similar items in EconPapers)
JEL-codes: E22 G10 G18 G32 G38 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:58:y:2023:i:pc:s1544612323009376

DOI: 10.1016/j.frl.2023.104565

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