Emission trading schemes and cross-border mergers and acquisitions

Yajie Chen, Dayong Zhang, Kun Guo and Qiang Ji

Journal of Environmental Economics and Management, 2024, vol. 124, issue C

Abstract: The Emission Trading Scheme (ETS) provides a market mechanism to mitigate carbon emissions and has been introduced in many countries. Its fundamental idea is to make carbon emissions costly. Consequently, firms undertaking cross-border expansions may have to consider this extra cost when entering markets with an ETS. They may avoid these countries or relocate their investment to countries without an ETS. Using a large sample of international firms between 2002 and 2019, we investigate this issue via a difference-in-difference approach. Our results show that ETS implementation leads to significantly less cross-border merger and acquisition (M&A) deals in the host countries, indicating an avoidance effect or potential carbon leakage. Further analysis reveals that ETS implementation decreases firms’ financial performance and increases market risks, both contributing to cross-border M&A decisions. We demonstrate strong evidence of cross-sectoral differences, where carbon-intensive sectors tend to bear higher costs. This study contributes to the environmental economics and finance literature and provides evidence with policy relevance.

Keywords: Carbon emission; Climate policy; Cross-border M&A; Emission trading schemes; Transition risk (search for similar items in EconPapers)
JEL-codes: F21 G32 G34 Q54 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeeman:v:124:y:2024:i:c:s0095069624000238

DOI: 10.1016/j.jeem.2024.102949

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