Does the EU-ETS affect the firmÕs capital structure? Evidence from French manufacturing firms

Pascale Combes Motel (), Aimé Okoko () and Sonia Schwartz
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Pascale Combes Motel: Laboratoire d'Economie d'Orléans, University Clermont Auvergne
Aimé Okoko: Laboratoire d'Economie d'Orléans, University Clermont Auvergne
Authors registered in the RePEc Author Service: Pascale Motel Combes ()

No 2024.05, Working Papers from FAERE - French Association of Environmental and Resource Economists

Abstract: This study investigates the impact of the European Union Emissions Trading System (EU-ETS) on the capital structure, namely the debt ratio, of French firms from 2007 to 2018. To do this, we construct an original database linking French firms subject to the ETS to their financial variables. Using a matching method, we show that firms participating in the ETS have a higher debt ratio than non-participating ones. To consider the effect of the initial allocation of allowances, we divide our sample of treated firms according to their initial allocation quartile. We find that firms with the lowest initial allowances have the highest debt ratio. Furthermore, the ETS's effect on firms' capital structure is observed during Phase 2 (2008-2012) as opposed to Phase 3 (2013-2020) and concerns firms operating on domestic markets. The effect also differs according to the sectors selected. Our results suggest that, faced with the ETS, firms anticipated the future tightening of environmental constraints. Firms that received the fewest free-of-charge allowances complied by investing in pollution-reduction technologies relying on debt financing. Environmental policy variables, therefore, have an impact on the financial structure of firms.

Keywords: EU-ETS; capital structure; initial allocation; propensity scores; entropy balancing (search for similar items in EconPapers)
JEL-codes: C33 D22 G32 Q53 Q58 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2024-10
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