Does Volatility in Air Pollution Index Affect Firm Financing Pattern?

Lara Al-Haddad, Shafiq Al Abed, RaEd Kamal QaQish, Zyad Marashdeh and Abd Al-Salam Ahmad Al-Hamad
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Lara Al-Haddad: Department of Finance and Banking Sciences, School of Business, Yarmouk University, Irbid, Jordan
Shafiq Al Abed: Business School Alahliyya Amman University
RaEd Kamal QaQish: Architecture, BIM and CAD Canadian University Dubai
Zyad Marashdeh: The Hashemite University
Abd Al-Salam Ahmad Al-Hamad: Banking and Finance Department, Faculty of Business, Applied Science Private University, MEU Research Unit, Middle East University, Amman, Jordan

Advances in Decision Sciences, 2023, vol. 27, issue 4, 1-23

Abstract: [Objective] This study investigates the impact of air pollution index volatility on firm financing patterns by conducting an analysis of non-financial sector enterprises of 6 Asian economies. [Design/methodology/approach] To achieve the objective of our study, we employed a two-step system, the Generalized Method of Moment, to establish the regression among the variables. [Findings] The results of the estimated technique in our analysis shed light on an issue that the highly polluted firms confront environmental violation risk, urging financial institutions and stakeholders to incorporate carbon-related hazards into their investing and lending decisions. As a result, firms face tougher terms and conditions when raising funds by using both debt and equity financing. Therefore, the current analysis documents an adverse impact of the environmental pollution index on both debt and equity financing. [Implications] The findings in our analysis infer that corporate managers should consider the consequences and sensitivity of the rising air pollution index in their decision-making to ensure sustainability in financing policies. [Novelty] This research introduces new insights into the real effects of environmental pollution on firm financing patterns by introducing new arrangements of the variables. This research relies on decision sciences fundamentals by exploring the impact of air pollution on firm financing patterns. Decision sciences intend to improve the procedures of decision-making. Moreover, our work seeks to expand such processes in the context of healthy financing decisions under high environmental hazards.

Keywords: Air Pollution Index; Firm Debt and Equity Financing; Climate Change; Environmental Risk (search for similar items in EconPapers)
JEL-codes: G32 Q53 (search for similar items in EconPapers)
Date: 2023
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